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Monday, 24 January 2005 20:00

News Roundup 24 January 2005


AT&T's strategic shift

For many many years, AT&T was known as America's premier phone company, but The New York Times reports (22 Jan.) that AT&T now has an ambitious turnaround plan to become a data transmission company selling an array of software products like network security systems - with phone calls being just one of many digital services.

The paper says that for the first time, voice calls generated less than half of the revenue in AT&T's corporate business group in 2004, although a few years ago, this approach was heresy at AT&T, where connecting calls was the cornerstone of the former monopoly's business. But with falling prices, growing competition and cheap new internet phone services from start-up companies, AT&T's future depends more than ever on vigorous cost-cutting and focusing on its worldwide data network.

The NYT reports that the strategic shift was evident in the company's quarterly earnings, when it announced just last week that profits jumped 84 percent in the fourth quarter, to $US625 million, beating Wall Street's estimates, thanks primarily to cost-cutting efforts. AT&T eliminated 23 percent of its work force last year and has automated large parts of its operations.

But, the paper says that the cost cuts only slowed the effects of a price war that drove the company's revenue down 10.2 percent, to $7.3 billion, in the quarter. The worst is far from over. The company expects sales to decline another 15 percent this year.

The company's new chief information officer says the way to stem the tide is to merge the hundreds of computer systems AT&T created over the years. With phone calls and data now transmitted increasingly via high-speed data lines using internet protocol (VoIP), the need for multiple systems is also diminishing.

The NYT says AT&T is also using more software to route more of its phone and internet traffic. By getting rid of bulky circuit switches, the company is significantly reducing costs connected to operating old-fashioned switching stations.

AOL offers more refined search engine

America Online has just introduced a new internet search engine, part of an effort to gain a larger share of the online advertising market.The service, called AOL Search, will sort results by geography and topic and offer a suggestion tool. AOL has licensed technology from Vivisimo, a closely held software company.

The New York Times/Bloomberg News report (21 Jan.) that America Online is bolstering its search features to compensate for its inability to win market share in web advertising from Google, the most-used internet search engine, and Yahoo. Google sells about half the search advertising in the United States. AOL has lost subscribers for seven consecutive quarters.

The paper says that third-quarter revenue at America Online, the biggest internet access company, increased 1 percent, to $2.1 billion, buoyed by the purchase in August of, which helps companies plan and track Web-based marketing campaigns.

Time Warner said last month that America Online's ad sales were about $US1 billion in 2004.

The NYT says the Web tools AOL has just introduced provide users with more personalised search features and snapshots at the top of each page presenting information on topics including local movies and sports results.

Apple seeks bigger bite of PC market with Mac Mini

The New York Times/Reuters ask the qestion (22 Jan. report) - might the Mac mini mean a bigger bite of the personal computer market for Apple?

That's the hope of Apple, says the paper, with the company's approximately 100 retail stores in the US opening an hour early last Saturday as the highly touted and low-priced Mac mini computer and iPod Shuffle portable music player went on sale.

Analysts are betting Apple's mini might just tempt users of rival Microsoft's Windows to switch operating systems and go with the Mac and its Mac OS X operating system.

The paper says that that transition hasn't happened yet despite Apple's ``Switch'' advertising campaign and in spite of the success of the iPod portable digital music players. More than 10 million have been sold since their introduction more than three years ago. Apple's portion of the worldwide PC market was 2 percent in the fourth quarter, according to preliminary figures from market research firm IDC.

Some analysts now estimate that 11 percent of those who have iPods and PCs that use the Windows operating system may shell out the $US499 for a Mac mini now that they're available.
The NYT says Apple has long been criticised for pricing itself out of the mainstream with its sleek products, but, now, Apple is changing course.

The report says that Apple's fourth-quarter share of the worldwide and US PC markets rose by a mere 0.1 percentage point each, to 2.0 percent and 3.4 percent, respectively.

Sony: year's sales and profit will miss targets

Sony has warned on that sales and operating profit would probably fall short of its forecasts because of rapidly declining prices for DVD recorders and video cameras, as well as stiff competition from Apple's popular iPod.

The New York Times reports (21 Jan.) that Sony, one of Japan's best-known electronics companies, now expects an operating profit of 110 billion yen ($US1.07 billion) for the fiscal year ending 31 March, compared with an earlier forecast of 160 billion yen, a decrease of about 30 percent. Sony also trimmed its forecast for revenue for the year to 7.15 trillion yen ($69.6 billion ) from 7.35 trillion yen. The company raised its net income forecast, but only because of tax savings in its United States operation.

The paper reports that analysts have said the forecasts suggested that Sony was having more trouble than it anticipated in turning around its struggling electronics division. The company has trailed rivals like Samsung Electronics; Matsushita Electric, which makes Panasonic goods; and others in introducing hot digital devices like flat-panel televisions and DVD recorders.

According to the NYT report, Sony executives blamed unexpectedly steep declines in prices of a variety of electronics products for the lower profit forecasts in its core electronics division, which accounts for 70 percent of overall sales. Sony has had to match industrywide price declines of up to 40 percent on DVD recorders in the last year and decreases of as much as 30 percent on flat-panel televisions, say company executives.

Sony says the reason prices have been declining so rapidly is the ready availability of the crucial components of the latest digital products - like flat displays, hard drives and control chips - which makes it easier for new competitors to quickly come up with products of their own.

But, the NYT comments that Sony has at times stumbled in that effort. While the company invented the market for portable music players in 1979 with its Walkman, it was slow to come up with a hard-drive-equipped portable player that could match the iPod. Last year, Sony began selling a similar device, but met with a cool response because it did not play music files stored in the widely used MP3 format. Only last month did Sony announce that it would offer a version that is MP3 compatible.

Another reason for the lower forecasts announced last week was weaker-than-expected demand for Sony's semiconductors.

Sony was long considered one of Japan's most innovative companies, creating the Trinitron TV set as well as the Walkman, but the company has recently trailed nimbler rivals. Sony fell behind Panasonic last year in introducing the DVD and hard-disk recorders that are catching on with consumers.

Despite the expectation of lower sales, Sony raised its forecast for net profit for the year ending 31 March to 150 billion yen from an earlier forecast of 110 billion yen.

The NYT concludes it's report by saying that to get back on the path to fatter profits, Sony is counting on the PlayStation Portable, or PSP, a hand-held video game and movie player that Sony calls "the Walkman for the 21st century. Sony has said it has had already sold 800,000 of the sleek devices since they went on sale last month in Japan, and will double production of PSP's to two million units a month later this year to meet demand.

Cablevision sells satellite to EchoStar

In the US, Cablevision Systems Corporation has just dismantled its struggling satellite business by selling its satellite to EchoStar Communications for $US200 million in cash.

The New York Times reports (21 Jan.) that the sale comes just two days after Cablevision's 78-year-old founder, Charles F. Dolan, lost a showdown with his son James L. Dolan, the company's 49-year-old chief executive, over the fate of the satellite business.

The paper says the younger Dolan and the board voted to sell the satellite business, which had been criticised by investors as a black hole, despite vehement opposition from his father, who has heralded the business as the future of the company.

The sale of the satellite business to EchoStar ends Mr. Dolan's dream to create his third major media sensation.

In addition to creating Cablevision, Mr. Dolan founded HBO, the subscription-based cable network now owned by Time Warner. Mr. Dolan often compared his fledgling satellite business to HBO, frequently reminding investors that skeptics had belittled his early efforts to start that network, too.

The paper says Mr. Dolan had tried to create a niche in the satellite market by specialising in broadcasting more high-definition television programming than the other satellite providers or cable operators. But his vision may have been ahead of its time. Sales of high-definition televisions and demand for programming to match have not materialised as fast as he and many analysts had predicted.

New ways to manage photos

The New York Times says (21 Jan.) that 2004 was the Year of the Digital Camera - it was the year that Kodak stopped making film cameras, the year that digicams were even more popular holiday gifts than DVD players.

And, according to the NYT, if this month is any indication, 2005 will be the Year of the Software to Organise the Pictures You Took With Your Digital Camera.

The paper says that this week alone, two companies are releasing versions of popular photo-organising programs: from Apple comes iPhoto 5 for the Macintosh. From Google (yes, Google) comes Picasa 2, for Windows 98 and later. These two programs are very similar in design, features, visual effects and a bend-over-backward effort to keep things simple.

The NYT says IPhoto is part of Apple's new iLife '05 suite, which also includes iMovie (for video editing), GarageBand (recording studio in a box), iDVD (designing DVD menu screens and burning discs) and iTunes (a music jukebox, which is still a free download). The whole package costs $US80.

Picasa 2, on the other hand, is completely free, says the NYT. Not free as in "time-limited tryout," not free as in "ads in the margins," not free as in "you will be assimilated into our mailing list," but really, truly, no-strings-attached free. You can download it right now from (So how does Google plan to make money from Picasa, whose pre-Google version cost $30? The company says that will come later. Google does promise, however, not to get everybody hooked on Picasa and then turn around and start charging or taking away features.)

The paper says that if users have never used iPhoto or Picasa, they're in for a treat, describing them as elegant, visual, nearly effortless programs.

The report says that now, Picasa 2 and iPhoto 5 don't really compete with each other, since each requires a different operating system, and that the company that should really be sweating right about now is Adobe, whose Photoshop Elements 3.0 (for Mac and Windows) is only a few months old. The paper says it, too, is a terrific piece of software, but it's much bigger, more powerful and more complex; in addition to all the iPhoto-Picasa-type features, it can do things like keep track of offline photos (those on your CD's, not on the computer), superimpose text on your photos, stitch together pictures into a panorama, and so on. But Elements costs $US85 online, which is quite a bit more than free, says the paper.

The NYT concludes by observing that, in a world of software that's so bloated it actually intimidates you, the polish and grace of programs like Picasa and iPhoto are a breath of fresh air.

Music industry upbeat over online sales

The New York Times/AP report (22 Jan.) that music industry veterans, after several years of worrying about how illegal internet downloads could threaten their business, are humming a decidedly upbeat tune these days.

The paper says that while questions remain about how to best deliver hits by U2 or arias by Luciano Pavarotti to music fans, one of the industry's top conferences has opened in Cannes, France amid new signs that online downloads could become a moneymaker after all.

It reports that the optimism at the Midem conference is a sharp turnaround from a year earlier, before music publishers mounted a high-profile crackdown against piracy and online music sales soared.

Music aficionados in the United States and Europe legally downloaded more than 200 million tracks in 2004, or 10 times more than in the previous year, according to industry research, with estimated digital music revenues jumpingsixfold to around $US330 million.

The paper says the music industry has been in a slump since 2000, when P2P networks emerged and cut into sales of recorded music. Worldwide sales fell about 8 percent in 2002 and 2003, but the figures for last year are expected to be more positive.

The number of illegal downloads far outstrips online purchases of music, and industry leaders grumble that piracy will remain a permanent threat. The challenge for the industry is to convince consumers that internet-based purchases are easier and provide higher quality tracks than by receiving secondhand music on the peer-to-peer networks, says the NYT.

HP settles patent dispute

Hewlett-Packard has announced that it will pay US$141 million to technology company Intergraph to settle a patent-infringement case, with HP estimates the payment will cut its earnings by 3 cents a share in its first quarter this year.

The Mercury News/ report (22 Jan.) that the settlement ends Intergraph's many suits against the computer industry. Intergraph had accused HP of infringing on patents for its Clipper chip.

Since the mid-1990s, Intergraph has sued to protect its patent portfolio and reached settlements with Advanced Micro Devices, Dell, Gateway, IBM and Intel for allegedly infringing on patents for its Clipper chip and a parallel instruction computing design known as PIC.

Intergraph contended that the chip companies and computer makers infringed on its designs, either in their chips or in computer systems that use those designs.

The paper says that Intergraph, which left the hardware business in the late 1990s, said it will take a charge of $US11 million against its first-quarter earnings to cover its legal expenses.

The company now develops software and operates a services business. The largest settlement it reached was with Intel, who paid $675 million to Intergraph, including a payment on behalf of Dell.

Intergraph settled with AMD for $10 million and Gateway for $10 million, reports The Mercury.

Offshoring firms make big profits

The Mercury News/ report (22 Jan.) that highlighting the rapid growth of offshoring in the US software sector, the Bangalore-based technology company Wipro Limited has announced quarterly revenues of $US483 million for the three months ending 31 December, up 34 percent from the same period a year earlier.

The company said revenues for its Global IT Services unit increased by 38 percent to $367 million, while overall profits rose 60 percent to $99 million. Wipro reported that it acquired 26 new clients during the quarter and expanded the number of employees worldwide to 39,337.

Wipro is listed on the New York Stock Exchange, where its shares are traded as American Depository Receipts, a form of stock that represents a certain number of shares in a foreign company. Its shares closed at $20.95 Friday, up 9 cents.

The Mercury says that offshoring software work and other professional services to the low-wage labor market in India is a controversial issue that was hotly debated during the 2004 presidential campaign. It says accurate data on the number of US service jobs that have moved overseas has proved elusive, but the growth of revenues in the offshoring business is one important measure of the trend.

The paper says that some industry insiders predict the number of US firms moving jobs overseas to boost profits will rise this post-election year, as the momentum behind the political outcry over displaced service sector jobs dies down.

Wipro was the last of the three major Indian offshoring firms to announce its third-quarter results. All three rival companies -- Wipro, Tata Consulting Services and Infosys Technologies -- showed double-digit growth and high profitability.

Tata, the oldest and largest of Indian offshoring companies, last week announced revenues of about $591 million in the October to December quarter, growing by 38 percent over the year. Net profits rose by 54 percent to about $162 million. Tata said it acquired 72 new clients in the period, and employed 43,681 people worldwide at the end of the year.

The Mercury reports that Infosys Technologies, the third rival, showed the most dramatic gain in revenues for the year-on-year comparison. It grew by 53 percent, reporting $423 million in sales for the quarter.

Net profits for the Bangalore-based company shot up 57 percent to $112 million.

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Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.





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