New wave of US telecom deals coming

In the US a wave of telecommunications industry mergers has created behemoths in the traditional telephone and cellular industries in the last year, and now the consolidation wave is likely to hit the equipment makers that supply the big carriers.

The New York Times reports (21 Feb.) that investors are increasingly talking about potential deals between Motorola, Lucent Technologies, Nortel Networks and possibly European manufacturers like Alcatel. The rationale is simple: When carriers merge, they cut their capital spending budgets. To survive, their equipment suppliers have to merge to keep revenue growing and expand into new product areas.

Inndustry analysts and others point to the Cingular Wireless-AT&T Wireless merger, which was announced last February, to show how the changing relationship between carriers can affect suppliers. In the quarter after that deal was announced, Ericsson, the Swedish equipment maker that supplies Cingular and AT&T Wireless, said orders from North America plunged 48 percent compared with the previous quarter.

The paper says that equipment makers are likely to see slowing growth in orders this year, according to industry analysts, because of deals between SBC Communications and AT&T and between Verizon Communications and MCI.

Though government regulators are expected to take a year to rule on the deals, the telecommunications companies will probably resist raising their capital spending plans until their mergers are approved and they have a better idea of what their combined companies will look like.

The NYT reports that SBC and AT&T buy about 60 percent of their combined equipment from the same vendors, which is not good news for manufacturers like Lucent, which has been a big supplier to the Bell operating companies and to long-distance carriers like AT&T.

Lucent and Motorola have been at the centre of most of the merger speculation recently. Motorola relies heavily on its mobile phone handset business, which has become increasingly commoditised as a result of pressure from rivals in South Korea and elsewhere. By acquiring Lucent, Motorola would expand its presence in the wireless equipment market to complement its strong position in the cable equipment market.

The paper adds that a combined Motorola-Lucent would hold 65 percent of the market for cellphones that use CDMA technology, the standard that Verizon Wireless, Sprint and others use. But only 30 percent of the world's cellphones use that technology, and the companies would not gain ground in Europe and Asia, where GSM technology is more prevalent.

Some analysts say that a Motorola-Lucent deal, or perhaps one between Lucent and Cisco Systems, the largest maker of internet networking equipment, would be easier to carry out than a deal between Lucent and a European or Asian company, like Alcatel or Huawei Technologies of China. In the first two cases, both companies are American and might be subject to less regulatory scrutiny.

The paper adds that analysts say that nationalism may also scuttle any attempt to take over Nortel, the Canadian giant that has suffered accounting problems and an executive shake-up during the past year. Though its sales have fallen by more than 60 percent since 2000, it remains one of the largest and most heavily traded companies on the Toronto Stock Exchange and its board is filled with well-known Canadian executives.

Regardless, says the NYT., the largest equipment makers will almost certainly have to change. Capital spending by the four Bell companies - Verizon, SBC, BellSouth and Qwest - has fallen 14 percent since 2002. Though they continue to invest in fiber optics, broadband services and software-driven network equipment, they spend far less on traditional circuit-switched phone equipment.

Pop-up company changing
The Claria Corporation of the US, a company that has in recent years collected enemies among internet users and publishers, is ready to play nice, says the New York Times in a 21 February report.

The paper sayus tha the company, formerly known as the Gator Corporation, built a business covering consumer desktops and publisher web sites with pop-up ads. But last week Claria announced a new advertising service that rejects pop-ups and seeks to make business partners of publishers.

The service, called BehaviorLink, will operate much like Claria's existing approach in that it will track the surfing patterns of some 40 million internet users who downloaded free music-sharing software from Kazaa or other free programs like weather-tracking software from Claria.

However, the NYT says that under the new program, Claria will use this information to buy ads on publisher sites, rather than use pop-ups. Claria says it believes this is a winning situation for everyone: publishers get paid for advertising inventory; Claria gets paid by marketers who want to reach consumers; and users see fewer pop-ups.

According to Claria, the company has already signed up nearly 100 advertisers for the service, and he said it plans to buy US$75 million worth of advertising space on publisher sites over the next year for its BehaviorLink program. Those ads will begin running this US spring.

An Gartner analyst said she believed that BehaviorLink would probably succeed. "Publishers have the potential to sell their inventory at higher prices because Claria is selling targeted ads. And for consumers, it means fewer pop-ups."

While Claria markets its BehaviorLink service, it will continue to rely on its pop-up ad network, called Gain, for much of its revenue, the paper reports. The Gain Network - which netted the company more than US$100 million last year, more than 90 percent of Claria's overall revenue - displays pop-up ads for companies.

MCI deal still in play

Last week, MCI, the US long-distance telco, recommended the company board accept a US$6.75 billion takeover offer from the wireless behemoth Verizon Communications, at the same time dismissing of a rival offer from Qwest Communications International that was worth a lot more: US$8 billion.

The New York Times reports (20 Feb./) that now investors are crying foul, arguing that MCI shortchanged them more than US$1.2 billion. Some have already filed a suit to block the deal. And Qwest, desperate to merge, is scrambling to submit a new bid for MCI.

The performance of MCI's shares on his watch has been anemic, reports the paper, and the price that MCI chairman Capellas accepted from Verizon is less than the market capitalisation of the company in April, when it emerged from bankruptcy protection.

The NYT reports that Qwest has mounted a new offer, and MCI's asking price can go only higher. Investors are betting on it. Shares of MCI closed on Friday at US$22.31, more than the US$20.75 a share that Verizon offered. Investors seem to be expecting that if MCI rebuffs Qwest again, the company may be able to squeeze even more money out of Verizon

Toshiba's new chip plant

Japan's Toshiba and its US partner SanDisk have announced that output at their new flash memory chip plant would be 40,000 wafers per month by the first half of 2007.

The New York Times reports (21 Feb.) that the 270 billion yen (US$2.55 billion) plant in western Japan, completed on Monday, will start producing NAND-type flash memory chips in the second half of this year. A rewriteable memory chip that does not require power to retain information, NAND-type flash memory is widely used in digital cameras and camera-equipped mobile phones.

The paper says South Korea's Samsung Electronics held a 54 percent share in the global NAND flash market in the third quarter of 2004, while Toshiba had 29 percent, according to data from research firm iSuppli.

The recent launch by Apple Computer of the iPod Shuffle, a portable music player using flash memory rather than hard disk drives as a memory device, raised expectations for further growth in the flash memory market.

The NYT says Toshiba has dominated the NAND flash market with Samsung, but new entrants such as Hynix Semiconductor led to steep price erosion last year and prompted Toshiba to cut its full-year earnings outlook for the year ending on 31 March.

Toshiba and SanDisk said they expected global demand for NAND-type flash memory chips to grow to 2.1 trillion yen (US$19.86 billion) in 2008, up from 700 billion yen in 2004.

According to the NYT report, the new 300mm-wafer plant is owned by Flash Partners, a joint venture formed in September 2004, owned 50.1 percent by Toshiba, Japan's second-biggest electronics conglomerate, and 49.9 percent by SanDisk, one of the world's biggest flash data storage card producers.

Microsoft quandary over virus security

The New York Times/AP carry a report (20 Feb.) which says that if Microsoft doesn't do more to stem internet attacks, the company risks further alienating customers unhappy with the multitude of threats already facing its ubiquitous software. Sell its own security products, on the other hand, and Microsoft faces a potential backlash from some of its allies -- the companies that now provide an extra layer of security for its Windows operating system, Internet Explorer browser and other products.

The paper says that with a powerhouse like Microsoft becoming a direct competitor, they could get squeezed out - a quandary for the company.

Last week, Microsoft Chairman Bill Gates confirmed plans to sell antivirus products to both consumers and big businesses by the end of the year.

Speaking at a security conference, Gates also said the company would give consumers a free tool for combating spyware, a growing threat that can monitor users' activities, hinder computer performance and create other hassles. Microsoft also will sell a more sophisticated antispyware product to businesses.

According to the NYT., executives in the security industry say they believe Microsoft's promise to continue sharing security information and working with other security companies even after it becomes a direct competitor.

Microsoft's move to sell antivirus software appears fair so far, according to one seccurity firm executive, though he said Microsoft's decision to give away an antispyware product could hurt smaller players who can't afford such giveaways.

Security companies including McAfee already sell antispyware products, generally charging between US$30 and US$40, though a few give away versions or trials for free.

Microsoft has downplayed the competitive angle, saying they are simply responding to requests from customers for more protection options.

The security problems are costly and damaging to Microsoft's reputation, say analysts, and failure to address the threats could drive more customers to competing products such as the Mozilla Firefox browser or Apple.

Microsoft's prior moves into new markets -- including trouncing browser pioneer Netscape by shipping its Windows systems with Internet Explorer, now such a common target of Web-based attacks -- have gotten the company in hot water with antitrust regulators in the United States and Europe. But for now at least, some competitors say they aren't planning to take this battle to court.

Toys going high-tech

Electronic toys, which make a child's play more interactive and personal, are among the products manufacturers are betting on to help them reclaim sales lost since 2003 to grown-up gadgets like iPod music players.

The New York Times/AP report (20 Feb.) that while these high-tech offerings account for only a small number of the products being unveiled at this year's industry expo, the American International Toy Fair, they represent the "wow factor" -- the kind of product that draws parents into stores, said Chris Byrne, a New York-based independent toy consultant.

All kinds of toys are going high-tech -- industry analysts estimate that at least 75 percent of toys debuting this year will have a microchip, and industry watchers say the lines have blurred between toys and electronics.

The new toys include products like Pixel Chix, from Mattel, a handheld gadget in the shape of a house that lets a child interact with an animated girlfriend; or, Winnie the Pooh or Elmo Knows Your Name, from Mattel's Fisher-Price, a doll that can know a child's name and other personal details, such as his or her birthday and favorite games. Using a cable connection and a CD-ROM, parents can download key information into the characters.

The NYT also reports on a new version of Furby, from Hasbro, which boasts a new technology called emotronics that brings the plush toy more to life. It will be able to speak interactively with the child and reacts to words like "hungry".

Manufacturers say they need to create more compelling electronic toys as children become more sophisticated and have more choices when it comes to playing and entertaining themselves, from video games to consumer electronics gadgets like digital music players and cell phones.

As microchips have become more powerful, manufacturers have been able to make more advanced toys that are still affordable, reports the paper.

Intel's new technology speeds up network traffic

Intel next year will plant itself square in the middle of the budding market for systems that speed network traffic by rolling out new technology called I/OAT, reports The Register in the UK.

I/OAT stands for I/O Acceleration Technology and it will be previewed for the first time at next month's Intel Developer Forum (IDF) in San Francisco, reports The Regioster.

The Register says Intel remains cagey about what exactly I/OAT is, but has said it will solve some of the problems of enterprise server customers.

The online news service says the problems in question relate to network slowdowns that occur as servers try to crunch through the TCP/IP stack. Customers often find that their servers spend an inordinate amount of time dealing with network traffic when they should be hammering away on application data. To that end, a number of companies such as Adaptec and Alacritech have developed TOE cards or TCP/IP Offload Engines. These cards plug into servers or storage systems and handle much of the network traffic.

The Regsiter says Intel plans to sidestep the need for separate TOE cards by building this technology into its server processor package - the chip itself, chipset and network controller. This should reduce some of the time a processor typically spends waiting for memory to feed back information and improve overall application processing speeds.

Intel expects the technology to debut as a standard part of its server products in 2006.

Calls for federal regulation grow as data retailer scandal widens

When word first emerged in the US last week that scammers had illegally obtained detailed dossiers on 35,000 people by posing as legitimate customers of ChoicePoint, the data-brokering company portrayed it as a relatively minor criminal case, limited to California.

However, the New York Times reports (20 Feb.) that by week's end, it was shaping up to be a full-blown scandal with as many as a half million people nationwide in the US potentially vulnerable to identity theft.

Outraged, attorneys general from 38 states demanded that ChoicePoint warn any victims in their states as well, and politicians, consumer advocates and security experts called for more federal oversight of a lightly regulated industry that gathers and sells personal data about nearly every adult American.

The NYT says that last Friday, the Los Angeles task force in charge of the criminal investigation confirmed that at least 700 people had their identities stolen during the yearlong scam by still unknown con artists who had signed up as clients of ChoicePoint.

The task force said the number of people vulnerable to identity theft in the case could reach 500,000, a much higher number than the latest estimate acknowledged by ChoicePoint, which belatedly sent warning letters to a total of 145,000 people in various states after a chorus of complaints, says the NYT.

The paper says that the volume of data compromised was so huge that it is almost certain that a 41-year-old Nigerian man sentenced last week to 16 months in jail in the scam did not act alone.

The man, Olatunji Oluwatosin, was arrested on Oct. 27 when ChoicePoint faxed him some paperwork at a Kinko's store in a sting operation. He pleaded no contest and did not agree to help authorities in the probe.

The NYT reports that word of the identity theft case got out after ChoicePoint sent warning letters last week to people in California -- the only state with a law requiring disclosure of such security breaches to people whose identities are threatened. But ChoicePoint said it discovered the breach in October, when the Los Angeles County Sheriff's Department began investigating one case of identity theft.

Computer experts worry that ChoicePoint and other companies that specialise in gathering and selling private information still aren't sufficiently protecting it from unauthorised uses, the paper adds.

HP hires firm to start CEO search

Hewlett-Packard has said that it has hired executive search firm Russell Reynolds Associates of New York to conduct the hunt for a chief executive to replace Carly Fiorina, who was ousted by HP's board last week.

The Mercury Ne ws reports that HP., a printer and computer giant, has decided against working with one of the two top executive search firms -- Heidrick & Struggles and Spencer Stuart.

With the search firm now selected, many top executives and lesser-known leaders will be getting phone calls about the HP job, says the paper,also observing that former Oracle top executive Ray Lane, who was among the four finalists in HP's 1999 search for a CEO, has been mentioned as a candidate by some analysts and headhunters.

One search firm said he thinks the best candidate for the job is John Thompson, chief executive of Symantec. Thompson, a former top IBM executive, is in the middle of trying to close Symantec's controversial acquisition of Veritas, reportsa The Mercury.