The week in review: Wholly Microsoft

In a 125-page decision, the U.S. Court of Appeals for the District of Columbia Circuit upheld a previous ruling that Microsoft used illegal conduct to retain its OS monopoly and asked a trial court to determine an appropriate remedy--tossing out the possibility, at least immediately, of a company split. The appeals court also asked the trial court to revisit the controversial issue of tying products such as the browser to Microsoft's ubiquitous PC operating system.

For Microsoft, the decision puts it in the hot seat on a number of issues. For one, it potentially places in jeopardy the company's recent Windows XP bundling efforts and plans for .Net. The ruling could also expose Microsoft to huge legal liabilities in potential private lawsuits on behalf of consumers or competitors.

In a separate issue, the appeals court said the trial judge, Thomas Penfield Jackson, "seriously tainted the proceedings." It removed him from the case and tossed out his order calling for a Microsoft breakup.

XP in turmoil
Despite dodging a breakup bullet, Microsoft has a few more issues on its collective plate over the upcoming release of Windows XP.

The company's new product-activation technology, which locks Office XP or Windows XP to a particular PC hardware configuration, can deactivate unexpectedly, rendering the software useless until a code number is obtained from Microsoft. The feature could present the biggest headache to people who frequently upgrade or change components on their PCs. Already the activation technology, introduced to thwart piracy and promote software subscriptions, is controversial with some users of the new Office software package.

Separately, Microsoft is lightening the load on Windows XP by deciding to exclude Smart Tags--a technology that could alter the Web-surfing habits of millions of consumers--from the version to ship later this year. The company included Smart Tags in the most recent test versions of Windows XP, but a company spokesman said the technology will not be included in the final version that will be released Oct. 25. With Smart Tags, Microsoft can link any word on a Web page to another site chosen by the company. For example, if a person were reading a story about traveling, the word "airline" could include a link that would divert the reader to an airline or travel service chosen by Microsoft.

Microsoft, together with Intel, PC makers and retailers, will spend $1 billion promoting Windows XP, the software giant's upcoming operating system. Microsoft and Intel alone will spend $500 million to market Windows XP, which is slated for an Oct. 25 launch, with PC makers and retailers spending another $500 million. Microsoft will spend a combined total of more than $700 million on marketing to launch Windows XP and the Xbox video game console this fall, according to estimates from the company and Merrill Lynch. Xbox is set to debut Nov. 8.

Changing directions
In a major boost to Intel's Itanium chip, Compaq Computer will license its Alpha chip technology to Intel and will use Itanium in its servers as the PC giant looks to consolidate its operations to focus on software and computer services. Intel, through the Alpha deal, will gain valuable intellectual property from Compaq for use in its chips and a major customer for its Itanium processor. As part of the deal, Compaq eventually will transition all of its server systems to use Itanium processors.

In a radical change, VA Linux Systems announced it will stop selling Linux computers July 10, abandoning a business central to the company since its founding in 1993 and its phenomenal initial public offering in 1999. The company also will lay off 35 percent of its staff--about 153 of 436 employees. Leaving hardware means VA instead will work on Linux software, its collaborative programming tools, and its Web site. The move puts VA into closer competition with software specialists such as Red Hat and CollabNet.

Napster is forcing people who want to trade music through its file-swapping site to upgrade to a severely restricted version that allows trading of only a fraction of the songs previously available. People who signed onto the site on Thursday were greeted with a message telling them their older software would no longer work. "All previous versions of Napster have been disabled," the message says. "We're making this change as part of our ongoing effort to comply with the court's orders."

PC Expo: On the go
There wasn't much PC in PC Expo this year, as portable computers and handhelds took over the convention floor.

Aiming to restore confidence in his struggling company, Palm CEO Carl Yankowski announced several new deals designed to attract more corporate customers. Under one deal, Big Five accounting firm PricewaterhouseCoopers will begin recommending Palm handhelds to clients as a way to increase profits by making employees more productive. The two companies will work together to help businesses incorporate handhelds into their existing information-technology systems. They also will develop and market products that give companies mobile access to existing software such as customer relationship management and enterprise resource planning programs.

Compaq is working to create the "iPaq Economy" by dramatically increasing the selection of add-on modules for the handheld. The PC company showed off several upcoming expansion packs, including those for a cell phone, GPS (Global Positioning System) and Bluetooth wireless communication technology. Compaq, not unlike competitors Palm and Handspring, is trying to create additional uses for its handhelds. Company executives hope that additional expansion capabilities will help create an effect similar to what Handspring accomplished with its Springboard expansion slot: drive sales by allowing its devices to be used in a number of new ways.

Intel has moved forward in two major areas of the chipmaking process with "Tualatin," the new Pentium III processor the company showed off at PC Expo. Tualatin, also known as Pentium III-M, will initially be used mainly in notebooks. Intel executives said all of the major notebook makers, including Compaq, Hewlett-Packard, Dell Computer, Fujitsu and Sony, will adopt the new chip.

Tualatin uses Intel's new 0.13-micron manufacturing process, which allows smaller circuits to be printed on the chip, thus increasing the processing power that can be squeezed onto a piece of silicon. Tualatin also marks Intel's entry into the chip industry's copper shift, using the metal to connect circuits on the chip.

Also of note
Common encryption standards that allow people to digitally sign their e-mail have a well-known flaw that could allow messages to be surreptitiously forwarded to another person...Some high-ranking Yahoo executives have taken new roles at the Web portal, as newly appointed Chief Executive Terry Semel settles into his 2-month-old job with a little help from his friends in Hollywood...Internet service provider EarthLink plans to raise monthly rates by $2 for its basic, unlimited Net service...In a move that could pave the way for faster and less power-hungry networking chips, IBM announced that it has developed the world's fastest silicon transistor.

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