Apple's profit quadruples, yet stock falls

Apple Computer reported Tuesday that its earnings quadrupled in its fourth quarter on strong demand for both iPods and Macs. But overall sales of iPods fell short of analysts' high expectations, causing Apple shares to plunge in after-hours trading.

The New York Times reports (12 October) that Apple's report came a day before a product announcement that has the industry speculating about the company's next direction. Much of the speculation has focused on the possibility of an iPod that can play video, accompanied by music video sales through Apple's iTunes service.

And while iTunes continues to dominate online music sales, the competitive pressure grew on Tuesday as Microsoft agreed to promote the Rhapsody music service, a rival to iTunes, after settling an antitrust suit by Rhapsody's owner, RealNetworks, reports the nerwspaper.

The newspaper reported that Apple said net income for the fourth fiscal quarter, ended 24 September rose to US$430 million, or 50 cents a share, including a 12-cent benefit from several tax-related items. That compared with US$106 million, or 13 cents a share, in the quarter a year earlier. The earnings outpaced analysts' consensus forecast of 37 cents a share. But Apple's revenue fell short of expectations, at US$3.68 billion, a 57 percent increase from a year earlier. Analysts, though, had been expecting sales of US$3.73 billion.

The NYT also reported that for the fiscal year, Apple's revenue increased 68 percent, to US$13.93 billion. Net income for the year rose 384 percent, to US$1.335 billion.

Peter Oppenheimer, the chief financial officer, said Apple benefited in the quarter from a combination of strong Mac sales, a healthy back-to-school season and continued brisk demand for the iPod. The fourth quarter reflected Apple's introduction of the iPod Nano, a pencil-thin model that replaced the popular iPod Mini, which had been the company's best-selling music player.

According to the NYT., Timothy D. Cook, the executive vice president for worldwide sales and operations, called the demand for the iPod Nano "staggering," and said Apple sold more than a million units in the 17 days of the fourth quarter that it was available.

Apple's revenue from iPod sales in the fourth quarter was US$1.21 billion, up from US$537 million a year earlier. The company, which has roughly 75 percent of the worldwide share of portable music players, shipped a total of 6.5 million iPods in the quarter, an increase from two million in the quarter last year.

The newspaper says that analysts, though, had predicted that Apple would sell 7 million to 7.2 million units.

Microsoft and Yahoo plan to announce Wednesday that their competing instant messaging systems will interconnect, making it possible for users to send messages between the previously incompatible systems, according to a person involved in the announcement.

The New York Times reports (12 October) that until now the major instant messaging systems have been isolated from each other. Time Warner's America Online service has the dominant share of the instant messaging market, with MSN Messenger from Microsoft and Yahoo Instant Messenger ranked second and third.

The newspaper says that although Microsoft and Yahoo both offer voice as well as text chat services, the two systems will not initially offer interconnection for voice calls.

In August, Google entered the instant messaging market with a service called Google Talk, which is based on an industry standard known as Jabber and which has been widely promulgated by the open source software movement.

The New York Times reports (12 October) that a new report from the OpenNet Initiative, a human rights project linking researchers from the University of Toronto, Harvard Law School and Cambridge University in Britain, once again raises tough questions about the use of filtering technologies - often developed by Western companies - by autocratic governments bent on controlling what their citizens see on the Web.

The newspaper says that it should come as no surprise that the internet in Myanmar, the southeast Asian state once known as Burma and in the iron grip of a military cabal for decades, is heavily filtered and carefully monitored.

Myanmar "employs one of the most restrictive regimes of internet filtering worldwide that we have studied," said Ronald J. Deibert, a principal investigator for the OpenNet Initiative and the director of the Citizen Lab at the Munk Center for International Studies at the University of Toronto, reports the newspaper.

Myanmar now joins several nations, including China, Iran and Singapore, in relying on Western software and hardware to accomplish their goals, Mr. Deibert said.

The NYT says that Microsoft, Cisco and Yahoo, for example, have all come under fire recently for providing technology or otherwise cooperating with the Chinese government to enable it to monitor and censor internet use.

The newspaper says that, as with their six previous reports, OpenNet researchers combined a variety of network interrogation tools and the cooperation of a volunteer in Myanmar "who remains anonymous as a safety precaution," the report noted, to test the accessibility of various Web sites.

Sites like Hotmail, which offer free e-mail services, were routinely blocked, forcing Myanmar citizens to use one of the two officially approved (and easily monitored) internet service providers for their e-mail.

Google gave the first details yesterday of how it would carry out its commitment to devote a share of its lucrative public stock offering to charity and social causes. It said it had donated US$90 million to a new charitable foundation it started and would give another US$175 million to nonprofit groups and what it considers socially useful businesses over the next two to three years.

The New York Times reports (12 October) that Sheryl Sandberg, a Google vice president for sales who is also coordinating the foundation and related programs, said the company would focus its charitable efforts in two areas: global poverty, and energy and the environment. She said the two priorities were selected by Google's founders, Larry Page and Sergey Brin.

Peter Hero, president of the Community Foundation Silicon Valley, which manages charitable funds and endowments, said the amount of money Google has given its foundation and its planned future spending made it one of the largest donors among technology companies.

The newspaper reports that Intel, for example, said it donated US$72 million in cash and US$17 million in equipment last year worldwide. Microsoft said it donated US$47 million in cash and US$363 million in software to nonprofit organisations. Google's most direct rival, Yahoo, said it makes modest cash contributions and focuses its charitable efforts on providing publicity to groups ranging from the Red Cross to the Partnership for a Drug-Free America.

Google also gives free advertisements - worth US$20 million so far this year - to organisations it feels worthy, in areas like human rights, environmental causes and poverty.

Microsoft finally put its antitrust troubles in the United States behind it yesterday by agreeing to pay RealNetworks US$761 million to settle a lawsuit, according to a report in The New York Times (12 October).

The newspaper says that the two former enemies agreed to forge a partnership that promises to heighten the competitive pressure on the dominant company in digital music, Apple Computer.

According to the NYT, the announcement reflects how much the landscape in the software and digital media markets has changed in the last few years. The strategies and interests of Microsoft and RealNetworks have shifted as well, making them allies.

The NYT says that RealNetworks has evolved to become a distributor of digital media, especially with its subscription music service, Rhapsody. Its leading rival in the online music market is Apple. RealNetworks' media player software is still widely used, but its business mainly depends on selling music, video and games online through subscription services.

The newspaper also comments that Microsoft, by contrast, is a software company. Its interest in digital media is in selling player and distribution software, and selling digital rights management technology to counter piracy. Microsoft wants its software to run on personal computers, cellphones, video-game consoles and digital media players, and sells its programs to media companies, telecommunications networks, cellphone suppliers, and makers of PC's and consumer electronics.

The Microsoft-RealNetworks collaboration, Microsoft's Bill Gates said, was the "open alternative" in the digital media market.

The two companies emphasised that the pact was far more than a legal settlement. Under the terms, Microsoft will promote RealNetworks' music and game offerings on its MSN Web site and Xbox Live online game service, reports the NYT.

The newspaper says that in the last couple of years, Microsoft has reached a string of legal agreements with corporate plaintiffs including a US$750 million pact with Time Warner (its Netscape unit was the centerpiece of the federal case), a US$1.9 billion settlement with Sun Microsystems and a US$775 million agreement with IBM.

Advanced Micro Devices said yesterday that its third-quarter profit rose 73 percent on sales of chips used in laptop and server computers.

The New York Times carreies a Bloomberg News repoprt (12 October) that says that AMD had reported net income rose to US$76 million, or 18 cents a share, from US$43.9 million, or 12 cents, a year earlier.

Revenue increased 23 percent, to US$1.52 billion from US$1.24 billion. Both revenue and profit exceeded analysts' estimates compiled by Thomson Financial.

The newspaper says that AMD., a leading maker of computer chips, has introduced products including the Opteron server chip and the Turion laptop processor that have helped it make gains against its larger rival, Intel.

Mobile phone giant Nokia said on Wednesday it was launching three new mobile devices for business users, to hit the shelves in the first quarter of next year.

Reuters reports in The New York Times (12 October) that Nokia said the E60, E61 and E70 were designed to work with mobile e-mail systems like RIM's BlackBerry Connect as well as Nokia's own Business Centre, which it launched last month to make e-mail available on a wider range of phones.

They would also support mobile e-mail from Visto Mobile, Seven and Good Technology.

Reuters reports in the NYT that the new devices include a range of GSM frequencies and 3G capability as well as WLAN and Bluetooth short-range radio technologies, Nokia said.

The E60 would allow conference calls as well as internet protocol-based telephone applications, with a color screen for handling e-mail and calendar functions. The E61 has a full keyboard and can send and receive e-mails while the user is making a phone call. The E70 has a messaging keyboard, with a color screen for viewing e-mails as well as spreadsheets and presentations, reports Reuters.

The European Union has called on Europe's music industry to create EU-wide copyright licenses for online music, saying this would boost demand for legal downloads.

The Associated Press reports in The New York Times (12 October) that music copyrights are currently collected by national agencies, but the emergence of online music services such as Apple Computer's iTunes means there is growing demand for a license that covers all 25 EU nations.

The European Commission said the absence of bloc-wide copyright licenses has been one factor that has made it difficult for new internet-based music services to develop their full potential, AP reported.

The AP/NYT report says that Apple has to obtain separate licenses for each song in every EU country to offer it to all Europeans, which could cost it up to 475,000 euros (US$569,000) per song, the commission said. In practice, this means that users in some countries have a much smaller catalogue to choose from.

Last year, online music sales in the EU reached 27 million euros (US$32 million), far below the booming US market which reported 207 million euros (US$248 million) in sales, according to the AP/NYT report.

Texas Instruments has hired Morgan Stanley to sell its sensors and controls business, which could be worth US$2.5 billion, the Daily Deal said on Tuesday, citing unnamed sources, according to a Reuters report in The New York Times (11 October).

Reuters says that the division, which makes parts for the auto industry, accounted for US$295 million of Dallas-based T.I.'s US$3.2 billion in net revenue in the June-ending fiscal second quarter and US$72 million of US$669 million in company profit from operations.

Strategic bidders could include European companies such as Robert Bosch GmbH and Siemens. Lear Corp. and Eaton Corp. were also possibilities, the Daily Deal said, Reuters reports.

A Swedish internet bank was forced to shut down its website for a short time last week after its one-time password security system was targeted by a new type of phishing scam, according to reports.

The Register reports (12 October) that phishing usually occurs when a fraudster sends an email that contains a link to a fraudulent website where the users are asked to provide personal account information. The email and website are usually disguised to appear to recipients as though they are from a bank or another well-known brand.

However, The Register says that last week, according to a blog posting by Finnish security firm F-Secure, fraudsters unleashed a new version of the scam targeting Swedish customers of the online bank, part of Nordic financial services group Nordea.

Recipients were directed to several fake websites, thought to be based in South Korea, and asked not only for their account details, but also for the next password on their list of one-time passwords, says the publication.

According to The Register, F-Secure explains that Nordea's online banking customers are given a scratch sheet, which contains a certain number of hidden passwords. As customers use the service they uncover the next password in the list, which gives them access to their account.

The Register says that the bank discovered the attack last Monday night, and shut the site for around 12 hours. This is said to be the first time that a phishing scam has targeted such a password system, which is intended to be more secure than a normal fixed-password scheme, the publication adds.

Spending on information technology in the US will slow sharply in 2007, claims analyst firm Forrester.

The Register reports (12 October) that Forrester says that Ggrowth rates will drop from seven per cent in 2005 - 2006 to just two per cent in 2007.

Forrester says IT spending is governed by two factors: changes in overall growth and the introduction and adoption of new technology.

The Register says that since 2001 the US has been busy adopting internet technologies which has kept spending at around seven per cent - in line with US GDP. But Forrester expects to see a sharp drop in consumer spending in 2006 or 2007 due to worries over interest rates, energy costs and a potential drop in the housing market. This will prompt a rapid drop in IT spending with decreases in hardware investment leading to cutbacks in spending on staff and services.

The publication says that Forrester believes US business will react quickly to any slowdown by hacking at IT spending. However the analyst house believes IT spending will rebound quickly and start to rise again after 2008. In the period 2008 - 2010 growth will rise to nine per cent.

Small businesses branching out online have helped make 2005 the strongest year ever for internet growth.

The Register reports (12 October) that, according to internet infrastructure monitoring firm Netcraft, there are currently 74,409,971 websites worldwide, 2.68 million more than recorded in September.

According to The Register, some 17.5 million sites have been added to the web this year, the report said, making 2005 already the strongest year ever for internet growth and surpassing the previous yearly high of 16 million, recorded during the dotcom boom in 2000.

Netcraft attributes the growth to more small businesses realising the benefits of the net and creating a website. Bogging has also played a part, reports The register.

The Register says that, on the negative side, however, much of the increase can be blamed on spammers buying up new domains to manipulate search engines or purchasing websites no longer in use but still attracting traffic.