11th > September > 1998 Archive

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Intel-3Com deal rumoured

The Wall Street rumour mill came up with a possible Intel-3Com merger yesterday on the somewhat flimsy grounds that Intel staff have been visiting 3Com HQ a lot recently. Between them Intel and 3Com have 70 per cent of the network interface card market, but although that could be seen as a justification for merger (aka Intel acquisition), it's also the reason it ain't going to happen. Intel currently faces a Federal Trading Commission antitrust suit, and the last thing it wants to do is increase its image as a monopoly by buying-up most of the NIC market. 3Com on the other hand has plenty problems, some of them related to the NIC market. It has too much in the way of commodity product, both NIC and modem, and its position is shaky at carrier-class level. But it might be able to fix some of these by working with Intel. Intel is better at, could even be said to be in love with, commodity NICs. It's also pushing hard into areas like cable TV and video, and there are clear synergies available from a deal of some kind. That means there are plenty of reasons for Intel to be talking to 3Com, but merger? No way. ®
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First Globalstar satellites go pop

Motorola satellites go haywire at a slow drip rate, but Globalstar goes a lot further - the first 12 in its network vanished in a ball of fire this week as a Ukrainian Zenit 2 blew up five minutes after lift-off. The explosion cost $160 million and whacked 40 per cent of Globalstar's stock. Loral Space & Communications, contractor and leader of the Globalstar consortium, lost 28 per cent. It's not yet clear what went wrong, but the accident will have set back the commercial launch of the network, due next year, by several months. Globalstar still intends to be operational by the end of next year, but is likely to be using a 32 satellite network initially, rather than the 48 originally projected. It also says that although the lost satellites were insured, it will face another $185 million in associated costs, and is seeking additional financing to cover this and similar contingencies. The consortium says it has launch dates with Russian rockets over the next four months that will be enough to replace the lost rockets. The accident will however increase the growing scepticism on the viability of satellite networks, caused by doubts over potential markets and a string of accidents and malfunctions over the past few months. And under current financial circumstances, Russia may not turn out to be the ideal place to be planning to launch satellites from. ®
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Gates scores BackOffice deal with phone company

Bill Gates' swing through Europe this week has won its first concrete result - a potentially lucrative BackOffice-to-Windows CE deal with Italian mobile phone consortium Wind. Wind is effectively a green-field site, having only recently won Italy's third mobile phone licence; it's a consortium of state-owned energy company ENEL and partner European telcos Deutsche Telekom and France Telecom. The deal may therefore give Microsoft the opportunity to increase its penetration in the parent companies. According to a memorandum of understanding signed by Microsoft and Wind, the companies will develop new services, largely service centres, access networks, accounting and management control systems as well as customer support and Intelligent Network (IN) systems. The services will use Internet and intranet technology, Microsoft Office and BackOffice products, and Windows CE, so the Wind deal could turn out to be one of Microsoft's first major NT Terminal Server deals as well. ®
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Clinton could force Web to its knees

The publication of the 445-page Starr "referral" into the alleged obstruction of justice, perjury, and power abuse by President Clinton may cause the Net to grind to a halt today between 14h00 and 16h00 East Coast time (19h00 to 21h00 London). The Web is increasingly being seen as the first port of call for avid news readers -- a CNN poll reports 95 per cent of respondents are planning to read it online. The Princess Diana death news and the Louise Woodward verdict have already shown the inability of the infrastructure to cope with surges in demand. Many websites will also be trying to download it for their readers, including the BBC online site -- and Monica Lewinsky's personal site. Some of the text may need censoring for obscenities, although Clinton is regarded as a poor second to Nixon in the scatological stakes. The document has a 25-page introduction, a 280-page narrative, and a 14-page rationale. There are also some 2,500 pages of supporting documentation, but it is apparently the intention of the House Judiciary Committee to review it and remove some personal references before the text is released. Releasing Starr's missive in this way -- before Congress has an opportunity to consider it, and before Clinton has seen a copy -- is extraordinary, uniquely American, and suggests that the motivation is political rather than judicial. It is unlikely that any vote for impeachment could occur for many months. Two IT industry effects can be expected: continuing unsteadiness in US financial markets as any case develops (which will tend to make impeachment less likely as most US investors love money rather than Presidents), and less attention being given to pending technology legislation. The first public knowledge of the affair with Lewinsky was on freelance reporter Matt Drudge's website. ®
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Our Larry's Q1 an Oracular good one

Larry Ellison, confounding critics who though he had NC-itis and was neglecting the main business, was able to announce a record first quarter for Oracle last night. Revenue increased 28 per cent, and net income 30 per cent compared with the year-earlier quarter, excluding one-time charges for the acquisition of Treasury Services Corp and Navio Communications. Oracle's database business grew 25 per cent and the applications and services business grew 37 per cent, confirming Oracle as the leading database vendor ($7.5 billion in the last four quarters), and number two to Microsoft in applications ($2 billion in the last four quarters). Geographically, the Americas were up 37 per cent, EMEA up 33 per cent, and Asia Pacific down 14 per cent compared with the year-ago quarter. Ellison said of the database business: "I have only IBM and Microsoft to compete with, since Sybase and Informix are having a hard time sustaining their business." He also noted that, contrary to financial analysts' prognostications, the database business has not yet matured. Licences in the database business increased 13 per cent, the third such quarterly increase in a row. Database services grew 33 per cent. The applications business was flat, but application services showed an increase of 51 per cent. With earnings of 20 cents/share, financial analysts polled by First Call were mistaken in their average projection of 15 cents/share. An excuse offered by one analyst was that Oracle had achieved better cost control, but a more convincing explanation is that financial analysts do not understand the database business. These results confirm that Oracle has managed a transition to a being a more focussed organisation, with a reorganised sales force. It has been an unstable year for its shares, which have drifted between $17.75 and $40, and rose to $23 5/8 in after-hours trading last night. ®
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Intel layoffs and efficiencies mean brighter Q3

Intel has predicted a bright third quarter, particularly in the US and Europe, because of what it described as stronger than anticipated demand. It has managed to cut its costs by laying off staff and improving its manufacturing process. That will mean its revenue for the third quarter will exceed its expectations. When it released its second quarter results in July, it had warned of flat expectations. Now Intel thinks its revenue for Q3 will be up by nearly 10 per cent, amounting to revenues of $5.9 billion. Gross margin will rise several points from the 49 per cent it reported in Q2 to 52 per cent. Part of the improved revenues in Q3, however, are are down to Intel's success in layoff stuff as well as increased efficiciencies at its manufacturing plants. Its expenses will be eight per cent higher than its Q2 expenses of $1.3 billion. It said it will now spend nearly $3 billion on R^D in this year. Capital spending for 1998 will amount to $4.7 billion, more or less flat from the same period in 1997. That estimate includes the acquisition of DEC's Alpha manufacturing facilities, which, ironically it will use to build chips for Compaq. Compaq may well use more Alpha chips than Merced chips. ®
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Microsoft, Infoseek deal bit of a puzzler

At first it's a little puzzling as to why Microsoft has done a deal with Infoseek to provide search and directory services for WebTV, which gives Internet access to television viewers who have the necessary additional box. Infoseek will pay Microsoft $26 million for a two-year deal (it's that way round because of the revenue from advertising that Infoseek will get). Infoseek's shares jumped nearly 10 per cent on the news, because of a guarantee that Infoseek will get 4.5 billion views during the deal, keep the first so-much (undisclosed) of advertising revenue, and split subsequent revenue with WebTV. The official explanation from James Aguilar of WebTV as to why Microsoft did not use its own bought-in Inktomi search engine was that "The search offering from Infoseek is available for our customers today, while Microsoft's offering is still in beta." It was surprising that Microsoft PR allowed the hint that it will be a long beta for Microsoft's engine. The second surprise was just how independent WebTV seems to be from Microsoft. This hands-off approach to WebTV is unexpected in that close Microsoft involvement at least in marketing was thought to be the only way for Microsoft to make WebTV successful. Consequently, Infoseek's cash is important to a quasi-independent WebTV. In a complex deal in June, Disney acquired 43 per cent of Infoseek. ®
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Any portal in a storm?

The browser wars went away, but have been replaced by portal wars. Nobody really yet knows if portals will prove to be enduring, or whether surfers will be sufficiently loyal to keep advertisers spending. E*Trade, one of the more popular Internet share trading sites in the US, finally launched its portal yesterday, and made more than 90 per cent of its site accessible to non-customers. E*Trade's decision was influenced by research that showed that there are some 10 million visitors to its site that are not yet investors. Other Net brokers only cater for customers, so E*Trade is clearly hoping to convert visitors to customers. E*Trade is likely to be one of the enduring second tier of portals for a specialised audience. Yahoo links to its homepage, as does AOL -- the latter reportedly receiving $25 million from E*Trade in a two-year deal. Softbank invested $400 million in E*Trade a couple of months ago, although during its promotional and expansionary phase, profits are not expected from E*Trade. Disney has registered go.com for its forthcoming portal, but the domain name no longer refers surfers to Disney's home page. No date has been announced, but a preview portal may appear at the end of the year, with a lunch early next year. The go.com name, requiring users to type in only "go" in many cases, will lessen the possibility of an adult site being encountered if "Disney" were miskeyed. It also makes it easier for the portal to showcase ABC and other Disney brands. ®
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NatSemi reports big loss for Q1 '99

As expected, National Semiconductor reported a big loss for its first quarter of its 1999 financial year. Turnover dropped by eight per cent compared to Q4 of 1998 and it showed a net loss of $104.8 million on turnover of $469.6 million. That compares unfavourably with a profit in the equivalent quarter last year of $62 million on turnover of $656.7 million. According to Brian Halla, CEO of NatSemi, sales were soft in the summer quarter. But he said that he thought his company "mahve have touched bottom". Bookings for its first quarter improved for the firsy time in a year, he added. Those booking improvements were largely due to the PC market. That echoes similar statements from Intel (see separate story, today). US and European bookings grew faster than other regions, but only Asia Pacific bookings showed a decline compared with its Q4 1998 bookings. Halla said: "We still feel it is too early to call the turn, and we remain cautious on the near term outlook." ®
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Adobe Mac support questioned

Adobe has vigorously denied it is canning support for the MacOS after posting disappointing Q3 results. The allegation appeared in yesterday's San Jose Mercury, which quoted an unnamed Adobe engineer as saying "not going to support Macintosh". Adobe says this is untrue. Adobe's fortunes have long been pegged to Apple's, and the latter's problems over the last few years have hit Adobe hard. Analysts had predicted flat performance for the company's Q3 results, and it didn't contradict them -- it made just $152,000 (down from $53.7 million in the same period last year) on revenues of $222.9 million (down from £230 million). Profits were down because of a one-off charge incurred by disposing of 350 staff. At the end of its report, the company listed "continuing weakness in demand for Macintosh application software and related printers" as one of several reasons that may affect the company's financial expectations. The company has offered Windows versions of all its design and illustration applications -- both professional and consumer -- for some time, but raised eyebrows earlier this year when it announced version 3.0 of its consumer photo-editing tool, PhotoDeluxe, would only be made available to Wintel users. However, Adobe described the San Jose Mercury as "a very damaging statement. It is very untrue". The newspaper was quick to pull the online version of the story. An Adobe spokeswoman went on to point out that the company had only just demonstrated its forthcoming DTP application, codenamed K2, running on a Mac at the Seybold publishing conference. Interesting point to note: K2 is the second-highest peak on the planet, suggesting that, for all the sofware's qualities, Adobe doesn't expect it to overshadow the DTP Everest, QuarkXPress. ®
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DRAM glut turns Toshiba profits into loss

Toshiba is the latest of the Japanese giants to show acute signs of discomfort from the slump in DRAM prices. The company today sharply revised its forecast for the current financial year and has now said it will make a loss of five billion yen, compared to an earlier forecast profit of $10 billion yen. In a statement, the company said: "The revisions reflect sharper price erosion in 64-Mbit DRAMs and other key semiconductor devices than it anticipated in the original forecasts." Other reasons for the sharp revision cited were sluggish demand for chips due to the Asian economic crisis and price drops in PC components including LCDs, CRTs and other peripherals it manufactures. It said that in the first half of 1998 that it has made a loss of 25 billion yen, compared to a previously anticipated profit of 40 billion yen. ®
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Warnock promised threat was no warning – here it is

John Warnock, Adobe's chairman, delivered on the warning of lower profits for its third quarter ended 28 August. Net income was just $152,000 on revenue of $223 million, with earnings per share of $0.01. Restructuring costs associated with a 12 per cent reduction of staff were $37 million. Excluding non-recurring costs, the earnings would have been $0.37/share, enough to beat the First Call consensus by 2 cents. Prior to the profit warning, which resulted from a severe Japanese draft that clipped more than $25 million from the year-ago quarter, the First Call consensus had been 50 cents/share. Warnock said: "We have taken the necessary steps to position the company for growth and profitability." What he did not spell out was that Adobe had never undertaken a serious cost-control exercise, because of comfortable 30 per cent growth and profits. A bad quarter provided the excuse. The Adobe board decided to pay $0.05 per share in dividend, since there was some $443 million in cash and short-term investments in the kitty. Sales for the quarter were down about 3 per cent compared with the year-ago quarter. Part of the problem was that Adobe had not delivered any significant product or update in the quarter. A new version of Illustrator is expected this month. Tough competition has arrived from Microsoft's PictureIt, but as the graphics market is expanding, this is less of a problem. So far as the future is concerned, Adobe has increased R&D expenditure, and with its slimmer workforce, appears well-positioned to improve its performance, even if the Japanese market does not recover very quickly. ®
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Corel – Cowpland faces Office situation

Opinion is divided as to whether Corel will emerge from six successive quarters of losses. The third quarter's results, to be released in a couple of weeks, are also expected to show a loss, although CEO Mike Cowpland says that expectations will be exceeded -- and that the fourth quarter will be profitable. The cause of the Corel's woe is the competition from Microsoft's office suite, and the effect of the pre-announcement of the next version, Office 2000, on Corel's sales. In addition, competition in the graphics market is increasing. When Corel acquired WordPerfect from Novell, its selling expertise had been entirely in the retail market with its boxed graphics products such as CorelDraw. Corel has just released CorelDraw select edition, which is a scaled down version of the professional graphics suite. Peter van Heulen of Corel Benelux told me that Corel was going through a transition, and had set up sales offices in major European countries, to target equally the corporate and retail markets. Corel offers keener prices for its WordPerfect suite, and had caused Microsoft to reduce the price of Office in France, where Microsoft had been completely dominant and pricing Office at twice what it charged in the Dutch market, where WordPerfect was well established. A major hope for Corel is that its NetWinder Linux computers will capitalise on the new enthusiasm for Linux and Windows-free zones. The spec for NetWinder calls for a StrongARM SA110 processor at 275 MHz. A second version, later this year, will offer WordPerfect, according to vice president Ron McNab. Corel was hoping to float Corel Computer, a separate company, but decided against it and is now integrating the company with Corel Corporation. ®
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Minks back with a vengeance – US to blame

Down in Cardiff, which we are told is in Wales, there is a group of boffins telling us all kinds of interesting things. So far this week we have had GPS to within half a centimetre, despite the fact it is non-year 2000 compliant but today's report took the biscuit. Boffin MacDonald, who claims to be from Oxford University, told the assemblees there that American mink have overrun three continents, wiping out local versions of mink and ferrets everywhere. Worse than that, but not according to the same boffin, three hedgehogs were planted on Benbecula by someone who wanted to get rid of rats and they have now destroyed practically all birdlife on three of the Western Isles. Inbred hedgehogs worry us here at The Register. Shouldn't they import cars onto the islands?
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Anixter retires from European reselling business

Anixter International, the US networking and cabling distributor, is selling off its European network integration unit… because it says the $80 million t/o business is too small. The company is selling ACI (Anixter Communications and Integrations) to South African Persetel Q DataHoldings, for an undisclosed sum. The two companies will handle multinational customers through a referral agreement. Persetel Q DataHoldings’ European businesses include Telemation in Germany, ComTech in Belgium and Luxembourg, Datelec in Switzerland, Nomea in France, and its “recently expanded” holdings of Comparex. Robert Grubbs, president and chief executive officer of Anixter International, said it became increasingly clear that “in order to succeed we needed to obtain significantly more critical mass more quickly. "We believe the transaction with Persetel Q Data Holdings will quickly provide the business with much of the critical mass it needs to succeed.”®