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Week in review: Microsoft shows us the money

Microsoft plans to move a mountain of cash reserves, and guess who the king of the hill is going to be.

Microsoft plans to move a mountain of cash reserves, and guess who the king of the hill is going to be.

As part of a plan to return $75 billion to shareholders, Microsoft will boost its dividend, buy back shares and offer a $3-per-share one-time payout. Analysts have been calling on the company for some time to distribute a chunk of its massive cash holdings. The software giant initially had urged patience but promised in recent months that it would offer a plan for the cash before an analysts' meeting next week.

The company said it will spend about $14 billion over four years to boost its dividend to a total of 32 cents per share a year, doubling the past year's dividend of 16 cents per share. The company expects to spend $32 billion on the one-time payout and $30 billion on the stock buyback.

Microsoft Chairman Bill Gates stands to make $3 billion on the one-time dividend, but the world's richest man doesn't plan to keep a penny of it. Gates said he plans to donate the windfall to the Bill & Melinda Gates Foundation, which has given millions of dollars to health research and education. Still, Gates isn't going home empty-handed. Microsoft's dividend boost should net Gates about $384 million.

Meanwhile, the financial picture is mixed for the world's largest software maker. Amid a strong PC market, Microsoft reported quarterly revenue well ahead of analysts' estimates, though earnings fell short of what some investors were hoping for.

In addition to benefiting from strong PC sales and improved MSN advertising sales, Microsoft's revenue was boosted by a relatively weak dollar. The company said the impact of foreign currency rates contributed to about 3 percent growth in its total revenue.

The day the music died?
Apple Computer unveiled a fourth-generation iPod that offers a slimmer case, click-wheel navigation and significantly improved battery life. The two new models offer more capacity for the same price as today's models.

The battery in the new iPods offers 12 hours of juice, up from an eight-hour rating for the current models. There are also software advances, including a feature that lets people listen to audio books at fast or slow rates.

However, the iPod could be extinct soon. In a move that's alarming technology companies, the U.S. Copyright Office is about to endorse new legislation that would outlaw peer-to-peer networks and possibly some consumer electronics devices that could be used for piracy.

The Induce Act, which enjoys broad support in the music industry and from a handful of software companies, is designed to overturn an April 2003 ruling from a California judge that said StreamCast Networks, which distributes Morpheus, and Grokster were not liable for copyright infringements that took place using their software. Critics of the bill warn that it could make hardware makers like Apple and Toshiba--and even journalists--liable for products and reviews that could "induce" the public to violate copyright law.

Sen. Orrin Hatch, R-Utah, chairman of the Senate Judiciary Committee, said he intends to move ahead with the highly controversial Induce Act, despite objections from dozens of Internet providers and Silicon Valley manufacturers.

Hatch added, however, that he welcomes comments from critics. "If you help us, we just might get it right," he said. "If you don't, we're going to do it. Something has to be done. There's no way to solve these problems so everyone's totally pleased."

Hatch has also agreed to work with tech companies concerned that devices like Apple Computer's iPod would be imperiled.

Phantom customers
Internet marketers facing higher advertising fees on search networks are becoming increasingly concerned about a form of online fraud that was thought to have been contained years ago. The practice, known as "click fraud," began in the early days of the Internet's mainstream popularity with programs that automatically surfed Web sites to increase traffic figures.

This led companies to develop policing technologies touted as antidotes to the problem. But some marketing executives estimate that up to 20 percent of fees in certain advertising categories continue to be based on nonexistent consumers. Although the extent of click fraud is impossible to measure with any certainty, its persistence has exposed a fundamental weakness in the promising business of Internet search marketing.

That problem is complicated by the fact that online advertisers' demand for exposure in the results of Google and other search engines may soon outpace the supply and drive up prices, according to a new study. The report predicts growth of Web search traffic will likely slow in the coming years, limiting the inventory available to marketers. Couple that with a continued rise in spending on paid search, and it could cause prices to increase.

Coming attractions
Manufacturers are set to release portable digital media players, but there?s little expectation they will transform the market overnight in the way that digital audio players such as the iPod changed the music industry. Portable video players will let consumers download, store and view television shows, movies, music, photos and other digital content on the players' big hard drives and small color screens.

But there are significant potholes on the road to iPod-level success, which may be why two key arbiters of hip portable devices--Apple and Sony Electronics--aren't rushing their own video devices to store shelves. In the short term, few services have been created to deliver content, and consumers will have to get used to the idea of carrying video around to watch while waiting in airports or commuting on trains and buses.

A number of start-ups are tinkering with technology that could enhance or replace hard drives, flash memory cards and other storage devices. The new technology will benefit consumers, but, just as important, reduce the onerous capital budgets facing manufacturers.

Manufacturers of hard drives and other storage technology are notoriously slow to adopt new methods. But advocates claim they can achieve far greater densities than is possible with existing storage devices. The new technologies being developed rely on materials such as molten silicon, animal protein and designer molecules.

Also of note
The SCO Group, a struggling company with a loud campaign to profit from Unix intellectual property, largely lost a case it brought against DaimlerChrysler...Microsoft will pay upstart Linux seller Lindows $20 million to settle a long-running trademark dispute...Google has quietly added a feature to its free e-mail service that lets people import their address book contacts from rivals Yahoo, Microsoft and America Online.