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Week in review: Hard times for software

Warnings to Wall Street suggest that the "soft" in software could stand for the sector's recent financial performance.

The "soft" in software could stand for the sector's financial performance lately.

So far in this earnings period, more than 340 technology companies have preannounced their results. Of the group, one-third said earnings were higher than expected, and 16 percent said earnings would be in line with Wall Street's projections--while just more than half issued warnings that they would miss expectations.

The worse-than-expected results shaved billions of dollars in market value from the software companies this week alone, including $4 billion from Veritas. PeopleSoft followed with a warning that its earnings would fall short of its goal by about a third. It primarily blamed issues surrounding rival Oracle's hostile bid to acquire the company.

Siebel Systems and BMC Software also warned that they would miss analysts' second-quarter earnings projections, citing a delay in buying decisions by prospective customers.

With an eye on improving the bottom line, Microsoft CEO Steve Ballmer said the software giant needs to do a better job of convincing customers that the latest versions of its products are worth having. He also called for $1 billion in cost cutting and tighter controls on the company's expenses.

Ballmer said one way to make Microsoft products more useful is to offer more tailored versions of its main products. The company has already expanded the number of versions of Office and is also working to offer more specialized versions of Windows Server, such as a forthcoming version for high-end computing.

Attack of the worms
Two destructive Internet worms appear poised to make unwelcome returns. The author of mass-mailing worm Bagle distributed its source code and two new variants, which could trigger another summer of misery for Windows users.

The Bagle worm first appeared in January as an e-mail attachment. Within months, there were more than 25 variants. Infected PCs download a Trojan horse that effectively enlists that computer into the worm author's army of zombie PCs, which can be used to distribute spam and other malware and to launch distributed denial-of-service attacks.

Meanwhile, the latest variant of the Lovgate worm scans PCs for executable files and then renames them, a tactic used by viruses from a much older generation. The Lovgate worm first appeared in February 2003 and has since mutated many times.

The worms spread by e-mailing themselves to addresses found on an infected machine and then open a "back door" to give control of the infected system to an attacker. Finally, they scan for vulnerable PCs connected to the infected system's local network--using the same Windows vulnerability exploited by the MSBlast worm almost a year ago.

Worms don't come cheap, either. A recent survey found that disruptions triggered by worms and viruses are costing companies an average of nearly $2 million in lost revenue per incident.

VoIP division
The political debate over how to regulate Internet phone calls is showing early signs of dividing along traditional partisan lines. At a House of Representatives subcommittee hearing, the Republican chairman struck a more cautious tone than his Democratic counterparts over what federal rules should apply to voice over Internet Protocol technology.

"We will never know VoIP's tremendous potential if we saddle it with unwarranted government regulation," Rep. Fred Upton, R-Mich., said in his opening remarks at one of the first hearings to address VoIP regulation.

The senior Democrat on the subcommittee, Ed Markey of Massachusetts, was not nearly as laissez-faire. Markey said the need for "consumer privacy rules, billing protections, fraud protections" and affordable residential service "does not disappear simply because a voice call travels in packets rather than dedicated circuits."

More uncertainty arose when the Internal Revenue Service and Department of the Treasury said they were considering whether an existing 3 percent federal excise tax on phone calls should be reinterpreted "to reflect changes in technology" used in "telephonic or telephonic-quality communications."

Although the notice does not mention Net phone services, industry advocates warned that it could lead to new taxes on fast-growing VoIP technology, depending on how it's interpreted. Rep. Chris Cox, R-Calif., sent a letter to President Bush asking him to "direct the IRS immediately to affirm that this 100-year-old tax does not apply to the Internet but only to traditional analog voice services."

However, a representative at the Treasury Department tried to quell alarm over the notice. "We are not considering taxing VoIP. It simply is a request for comment. We can't conclude whether we're going to issue new regulations until we know what the industry has to say."

Also of note
A computer science researcher has highlighted the shortcomings of Microsoft's latest patch for its Internet Explorer browser by identifying another way that online vandals could run malicious programs on a Web surfer's computer...Internet search giant Google is the target of a trademark complaint filed by the owners of children's Web site Googles.com...One in four people online has illegally downloaded a feature film--cutting into box-office and DVD sales, the Motion Picture Association of America says.