22nd > January > 1999 Archive

Magee exposed as liar

Alan Stanley, 22 Jan 1999

A year ago: Compaq gets Net knickers in a terrible twist

We were supposed to meet Roel Peiper at Comdex/Fall but were told he had suffered a skiing accident. Now we have a fair idea of exactly what that accident was. The Dutchman had attempted to ski down Eckhard Pfeiffer's hair and bumped into a road block. That also seemed to be the case for Eck's top channel supremo, who left the company in mysterious circumstances a week last Friday, thus suggesting to the wise that if you lose too many top lieutenants, you're going to find yourself fragged. But Compaq had not finished fragging itself in the foot, The Register discovered a few days later. Compaq UK has issued a document called Cost Confusion Control: The NC Exposed - conducted by an organisation called Benchmark and which attempts to lay waste to any arguments that an NC is better than a NetPC.... This survey talked to 384 IT directors and managers about the pros and cons of NCs and NetPCs and the spinners got lyrical when they put words in Compaq Exec's gobs. For example: "Proponents of the NC would have users believe that the NC is an IT nirvana. The reality is that there pros and cons to the NC." The spinners, unfortunately, are unaware that the word nirvana, according to Sir Monier Monier-Williams, in his monumental Sanskrit-English Dictionary, means extinction. Do the proponents of the NC really believe this? It would seem, on the other hand, that Compaq and the egregious Benchmark do have this in mind. According to the report (page 13), "The vast majority of IT directors and managers have no intention of adopting NCs or Net PCs in the next two years". So did this signal a u-turn from Compaq? According to the poor chap we talked to, it did not. Nor did he think that Compaq's own licensing of Citrix technology pre-Christmas meant anything at all. Nor was he aware that even as we write, the Windows Terminal is coming into its own. The problem is that Compaq has nailed its colours to the mast of the Net PC (passim, As You Like It) and now it finds itself hoist by its own petard, so engaging in a mixed metaphor of paradigms which denotes a shift in its PC strategy. Or, at least, that's what we think the marketing boys and girls know but aren't allowed to say. * Register MixedMetaphorParadigm No. 123. Nailing colours to the mast does not mean being committed, except insofar as holding out to the bitter end means the same thing. Petard is a kind of bomb and the danger was you could find it going off in your hand. ®
Mike Magee, 22 Jan 1999

Industry at crossroads – PCA report

The Personal Computer Association (PCA) held its annual dinner at the Computer Trade Show in Birmingham, with speakers discussing whether the industry is at a crossheads. But opinions differed as to the importance of the Internet for vendors, distributors and dealers. George Evans, MD of Making Markets, which has push technology aimed at dealers, said that the use of the Internet meant that entire business models were turned upside down. He said that his company had experienced 15 minutes of downtime a few weeks ago, and said that such instances cost Making Markets money. Use of Internet technology meant that trading days were like weeks, and trading weeks like months. Rana Mainee, strategic European analyst at chip manufacturer Advanced Micro Devices (AMD), said that experience showed that multifunction devices did not sell. "People never use more than one function," he said. "Most people have the same attitude to software. The mass market demands simple, functioning technology." Mainee said that the mass market was likely to adopt email and similar technology only when the cost of devices was either less than £100 or even free. "If you can get the cost of devices down to below that level or even disposable, that's when you will get mass market penetration," he suggested. "We sell 110 million PCs a year and there are six billion people on the planet," he said. "We haven't even begun yet." Mark Thompson, a mobile product manager at Microsoft UK, said that convergence was likely to be the shape of the future. Devices which were connected to global positioning satellites and fast GSM and other networks would bring unprecedented gains in terms of productivity. The PCA is an industry association with a membership consisting of vendors, distributors and dealers. ®
Mike Magee, 22 Jan 1999

UK trade show wins exhibitors' praise

The Computer Trade Show (CTS) managed to attract over 6,000 visitors in its two day run at Birmingham earlier this week. According to Stuart Greenfield, MD of the company which organises the show, on the first day there were 3,060 attendees, with a similar number arriving on day two. The show is in its second year, and Greenfield said that it had effectively doubled in size since its inception. A straw poll of some of the 400 exhibitors showed a high level of satisfaction with the quality of the visitors. Sukh Rayat, managing director of distributor Flashpoint, said he was very satisfied with the quality of visitors to his company's stand. He said that despite the direct approach of large vendors like Compaq and Dell, the number of small and medium sized dealers attendees showed there was good opportunities for business in the sector. He said he would definitely re-book for next year's exhibition. Rayat's comments were echoed by Alan Stanley, UK MD of memory distributor and manufacturer Dane-Elec. He had booked for this year's show after picking up good business at the first CTS last year. He said that prices for the floor space were reasonable. Other distributors exhibiting included Datrontech, Actebis -- which has just won an Intel franchise, Karma, Northamber and Microtronica, while there was a large number of smaller companies exhibiting. ®
Mike Magee, 22 Jan 1999

Cyrix teams up with Phoenix

Chip manufacturer Cyrix, which is owned by National Semiconductor, said today it had signed a far-reaching agreement with Phoenix Technologies. According to a statement from the company, the agreement means there will be a dedicated engineering team working on future technology. Dick Sanquini, VP of the Cyrix group at NatSemi said that the agreement would give his company access to enabling software technologies, not just in the PC market. Mobile connectivity products -- so called information appliances -- are expected to emerge from the agreement. Meanwhile, NatSemi announced it had promoted Jean-Louis Bories to executive VP and general manager of the Cyrix group. ¨
Mike Magee, 22 Jan 1999

Euro journalists get Intel treatment

A document seen by The Register which details Intel's approach to European journalists makes a clear distinction between the French and the German press. The French aren't interested in technology while the Germans are, claims Intel. Yesterday we reported that Intel makes a clear distinction between UK journalists and the rest of the EMEA press. (Story: Intel's Grove attacks UK journalism) According to the guide, which has a foreword by Andrew Grove, Intel's president, French journalists need careful handling. It is important that hands are shaken both before and after interviews. Intel employees must never show irritation to the French, and should preferably speak the native language. The document advises employees to be benefit rather than technology oriented, while broadcast and consumer journalists need "diplomatic handling". German journalists must be tackled differently. Direct eye contact is a must, while Intel employees can expect to be both criticised and confronted. While this may sound like rudeness, Intel employees are advised this is just an attempt by the hacks to understand the arguments. According to Intel, German journalists view the company as unapproachable although it is well regarded in general. Further, the German hacks want to know about technology. There are some general rules for the whole European press, although whether it applies to UK hacks is debatable. Intel employees are warned not to speculate, to lie, to knock the competition, or to get angry with journalists. In particular, Intel staff must never go off the record. "There is no such thing as a completely private exchange with a journalist, no matter how trusted," according to the document. And Intel says PR staff should be present, even during phone interviews. ®
Mike Magee, 22 Jan 1999

Watch out – here comes Windows $2000

Microsoft would be charging $900, even $2000, for a copy of Windows if it really did have a monopoly, claimed company witness Richard Schmalensee yesterday. Instead, he said, it charges around $50 a pop to OEMs, QED it isn't a monopoly. But Judge Thomas Penfield Jackson expressed scepticism: "Why must you always assume that a monopolist maximises the price?" he said. "It seems you can think of reasons why a monopolist would not maximise the price in quest of some larger glory at a later date." Judge Jackson may well be musing on the collected works of Microsoft OEM chief Joachim Kempin, whose internal documentation has produced a pretty clear picture of the kind of lock Microsoft has on OEMs, and how it maintains it. According to Kempin Microsoft is concerned first about keeping the price of Windows up despite falling PC prices, and despite rising PC sales -- that means that Microsoft's percentage take of each system has been rising, while system sales themselves have been rising too, thus helping increase absolute revenue. Other Kempin concerns have been keeping the upgrade mill churning, so Microsoft gets new sales to the same customers every couple of years, and slowly but determinedly moving towards a rental model. Note that the proposed Win2K registration routine we covered here yesterday (MS cunning plan makes people register) is a step in that direction. If you can't use the product without Microsoft knowing who you are and where you are, then Microsoft winds up knowing this about everybody, and another mechanism to support the rental model clicks into place. The answer to Schmalensee's point about Windows not costing $2000 is of course that pricing at this level could not be sustained in the PC market as we currently know it. System prices of $500-$1000 are becoming commonplace, so Microsoft's take on these is 5-10 per cent. It might be just about sustainable for the company to charge ten per cent or thereabouts, depending on the price of the machine, but anywhere beyond that would kill the market -- an entry level PC cost of $2500 would be impossible, while $4000 for the class of hardware that currently cost $2000 wouldn't be entirely helpful either. The effects, if Microsoft actually tried this, are fairly easy to predict. As Kempin explains, if pricing is too high it will trigger a revolt by OEMs. The trick for Microsoft is to keep prices as high as it can, but below the level where it starts to make obvious commercial sense to OEMs to develop alternatives. Another obvious effect would be, considering that system costs would have been knocked back to what they were in real terms at the beginning of the 80s, hackers would once again start knocking together cheap machines and operating systems. One of these (we might mention the L-word here) might turn into the new Microsoft. You can see how this almost becomes an argument as to why Microsoft isn't a monopoly, but it is of course a faulty one. Microsoft could destroy its monopoly if it pushed to hard on pricing, and actually it may well already be doing this -- Kempin understands that this is a possibility. But that doesn't mean it isn't a monopoly. ® Complete Register trial coverage
John Lettice, 22 Jan 1999

Biggest ever haul of bogus software uncovered

The largest haul of counterfeit software ever to be found in Europe has been uncovered by the Business Software Alliance (BSA) in Denmark. More than 125,000 illegal CD-ROMs -- worth an estimated $237 million -- had been distributed throughout Europe before Danish police closed down the operation. Several people, all Danes, have been questioned by the Danish National Computer Crime Unit under suspicion of masterminding the sale and distribution of illegal software. The CD-ROMs were manufactured somewhere in the European Union and advertised on the Internet under the labels Best of Internet, Silverado and Vegas. Companies such as Adobe, Corel and Microsoft were just some of those targeted by the software pirates. "This is an alarming example of an organised software piracy enterprise, where software has been produced, sold and distributed in a structured manner," said Kevin Lara of the BSA. "Anyone who bought a CD-ROM that contained a large number of business software products at a low price is effectively in possession of stolen goods," he said. A representative of the BSA said that they would be working with police to trace people in the UK who had bought the counterfeit goods. ®
Tim Richardson, 22 Jan 1999

AMD pushes date of K6-3D forward

AMD is now expected to introduce its SharpTooth K6-3D processor earlier than the 24th February. Although a representative refused to say exactly when the processor will be introduced, he did say that the date had been brought forward. AMD is attempting to knock the wind out of Intel's sails when it introduces its Pentium III (Katmai) part at the end of February. Meanwhile, rumours are circulating in the industry that Gateway 2000 is likely to use the K6-3D processor in some of its machines. Gateway has previously been a loyal Intel customer. No one from the company was available for comment at press time. ®
Mike Magee, 22 Jan 1999

Maritz deposition suffers mysterious leakage

During the Caldera-Microsoft lawsuit last year there was something of a spat over the apparent leakage of court documents to the press. That fizzled out without coming to any worthwhile conclusion, but what do we have here? Paul Maritz is due to take the stand next week, the transcript is due for release later today, but Dow Jones newswire seems to have acquired knowledge of what it is expected to say. Wonder how they got hold of that then? Maritz is reported to be "expected" to argue in his deposition (which Dow Jones "expects" to be 160 pages long) that the government antitrust suit threatens Microsoft’s survival. The outfit will no doubt be severely disappointed if Maritz turns out not to reason that Windows’ value for the industry is to provide a common software platform which makes it easier for developers to write applications. Dow Jones will furthermore be somewhat crestfallen if Maritz does not claim that the value of this platform will be reduced if PC makers are allowed to pick and choose which components they ship with their machines. Finally, Maritz is expected to deny he ever said anything about cutting off Netscape’s air supply, and to say that Microsoft did not bully Intel into dropping NSP. Dow Jones attributes its remarkably detailed expectations to sources close to the case, but doesn’t specify how close. We at The Register are puzzled by this, but are sure that, although the early leakage might seem helpful to Microsoft’s case, it’s just coincidental. ® Complete Register trial coverage
John Lettice, 22 Jan 1999

Euro appointments for Datrontech

Datrontech Group has appointed two MDs to run its Central European region. Piotr Kuznicki and Marek Kwiatkowski will join the company in its Polish and Czech Republic subsidiaries, respectovely. Both Kuznicki and Kwiatkowski have founded and developed one of the largest IT distribution companies in Central Europe. Mark Mulford, Datrontech CEO, said: "Having worked before with Piotr and Marek, I have great respect for their skills, and am delighted that they will be joining Datrontech." ®
Linda Harrison, 22 Jan 1999

Updated: Cyrix decides to socket and see

A hardware site is reporting that Cyrix will move to a PGA 370 pin socket design for its MX processors. According to JC's PC News'n'Links, the MX chip, which is an M2 with Cayenne's FPU enhancements, will knock the spots off Pentium II performance because it has an x87 unit at the level of the Pentium III. The report adds that MX chips will clock at 400MHz and move to 600MHz. The chips will sample in spring and be in production by July, while in August Cyrix will be available in September. Graham Jackson, European strategic manager at Cyrix-NatSemi Europe said: "We remain committed to integration and standalone business and whatever makes business sense." Said a representative: "Cyrix' position remains unchanged". ®
Mike Magee, 22 Jan 1999

Memory sees first profit in five years

After five long years of losses, Memory Corporation has at last recorded a profit. The turnaround came in the last quarter of 1998. The chip designer turned in a pre-tax loss of £2.24 million for the year on turnover of £47.9 million. For the fourth quarter of 1998, the company made an operating profit of £33,000, but a pre-tax loss of £309,000 on turnover of £26.3 million. The good news follows hard on the heels of the announcement that Memory has won a contract to supply memory products for ICL/Fujitsu Epos systems worth £7.9 million. The company’s broker, Beeson Gregory, is forecasting pre-tax a profit of £4.5 million for 1999, rising to £10 million for 2000. ®
Team Register, 22 Jan 1999

3Com readies Palm IIIx two months before Palm V is due

The next version of the 3Com's Palm handheld organiser will be called the IIIx, according to reports from US sources. The details of its specification that have so far leaked out suggest the device will offer 4MB of memory and offer improved screen clarity, though it remains a monochrome display -- colour is clearly some way off still. The Palm IIIx is set to ship at the end of February, coming it at the Palm III's current price-point, and forcing that device down in price. That will leave the III's remaining life very short indeed. According to Palm's European general manager, Neville Street, the Palm V -- which, according to US sources, has yet to be specced out -- will ship in the April/May timeframe, effectively just two months after the IIIx. Street's comments, made earlier this year (see Palm at fives and sevens over release schedule, suggested the Palm V would be half the thickness of the Palm III, thanks to improved battery technology, and offer a much clearer, black and white screen. How to reconcile these two sets of information? The most likely scenario is that the IIIx is what Street was calling the Palm V, possibly minus the new battery, which may have proved too costly, and so the new, thinner shell too. That slimline styling was first mooted as part of the spec. for Razor, Palm's next-generation palmtop, which was soon suggested would eventually be released as the Palm V. Of course, where all this leaves the Palm IV is anyone's guess. Still, only the supremely cynical would suggest Palm itself is leaking all this often contradictory data just to keep rivals guessing... ®
Tony Smith, 22 Jan 1999

Apricot says heave-ho to 200 employees

Apricot, the veteran UK PC maker, is to axe 200 staff -- 40 per cent of its workforce -- following the decision of parent company Mitsubishi Electric to scrap in-house motherboard production. At the same time, the company is scaling back in Germany, where it will close its local sales office before the end of June this year. In the third leg of the re-organisation, Apricot is setting up its own dealership to sell what it calls “integrated IT solutions to the UK’s education and medium corporate marketplaces”. Called Metaphorix, the dealership combines Apricot’s Software Solutions, Internet Services and direct PC hardware units. Apricot will shut down its surface mount technology (SMT) plant in Glenrothes, Scotland by the end of March. The company says it is committed to designing motherboards for the worldwide OEM market. This business is growing at 100 per cent a year, it claims. But it will sub out production in future to a company with “locations throughout the world and (which) will provide cost reductions via its overall volume”. ®
Drew Cullen, 22 Jan 1999

Portal Excited by good figures

Web portal Excite has posted encouraging year-end results after it announced that its turnover for 1998 topped $154.1 million, with a net loss of $6.7 million. In it's fourth quarter alone the company reported turnover of $54.1 million -- up 163 per cent on the same time last year. CEO George Bell said he was pleased with the strong results. In particular he said improved cash flow and increased patronage of its Web site -- up to 70 million page views per day in mid January, he claimed -- all helped to contribute to Excite's performance. He said a campaign to drive more users to Excite's Web site during the last quarter had proved successful helping the increase the number of user registrations by more than half. Earlier this week it was announced that @Home, the high speed US Internet service provider, had agreed to buy Excite for $6.7 billion. ®
Tim Richardson, 22 Jan 1999

iMac topped last quarter's PC sales

Apple's iMac continued to wow the crowds in the US during the last three months of 1998. But while the statistics are good news for Apple, they do suggest it needs to work harder in the retail sector. The first set of figures, from PC Data, showed the iMac outselling other consumer computers for the quarter. The iMac accounted for 6.2 per cent of all unit sales in the fourth quarter, as well as 7.2 per cent of the dollar volume, the company said. However, ZD Market Intelligence's data put the machine in fourth place, behind three versions of Compaq's Presario, the 333MHz Celeron-equipped 5050, the 5150 (based on a 350MHz AMD K6-2) and the 350MHz PII-based 5170. In fact, both companies' research isn't all that far out of alignment. According to PC Data's figures for December 1998 alone, the latter two of the three Presarios pushed the iMac into the number three slot. It's notable that neither the 5170 or the 5150 are especially cheaper than the iMac, but do offer rather more in the way of add-ons -- both offer far more memory (128MB and 96MB compared to the iMac's 32MB), disk space (8GB and 9GB compared to 4GB), faster CD-ROM drives (32x compared to 24x) and bundle a Zip drive. That suggests that while consumers have in past chosen design over features, they may be less keen to do so now. Still, the fact that a 266MHz machine can outsell a 350MHz machine at a lower price (until December, at any road), suggests Apple interim CEO Steve Jobs had a point when he said consumers were more interested in looks than megabytes and megahertz. The difference between both sets of data relates to the range of outlets they measure. While both companies poll sales in computer and office superstores, consumer electronics retailers and other PC retailers, PC Data also measures sales through mail order and online outlets. Of course, since these two sets of figures were calculated, Apple not only made price cuts and upped the specification of the iMac (but not, by any means, as far as the Presarios and other machines featuring on both PC Data and ZDMI's lists) but introduced the machine in five more colours. With the original iMac's sales tailing off by the end of the last calendar quarter, it will in interesting to see whether these gimmicks can push it back to number one. ®
Tony Smith, 22 Jan 1999

Iomega returns to profitability, begins reorganisation

Troubled removable storage specialist Iomega yesterday recorded its first profitable quarter of 1998. The company posted profits of $19 million, equivalent to 7c a share, up on the 5c a share Wall Street had expected Iomega to file. Still, the Q4 98 figure 90 per cent down on the $36.1 million profit the company made in the same period last year. Iomega CEO Jodie Glore, who took over that role last October, also announced a company-wide reorganisation that will merge the company's separate professional and personal storage divisions. That decision prompted the resignation of Fred Forsyth and Ted Briscoe, presidents of those divisions, respectively. The reorganisation may involve the loss of further jobs -- don't rule them out, warned a spokesman -- but the company said it does not expect to take a charge for the move. Whether the reorganisation will be enough to improve the company's outlook remains to be seen. In many ways, it has followed the example of its erstwhile arch-rival, SyQuest, the assets of which Iomega announced last week it intends to buy. In the late 80s, SyQuest became the market leader in removable storage and, happy with that, chose to rest on its laurels. That allowed it to miss what Iomega was up to, and was largely taken by surprise when Iomega launched its 100MB Zip drive and later the 1GB Jaz. The high demand for those products effectively hit SyQuest hard, which lost money hand over fist. It too was forced to reorganise to deal with its much reduced circumstances, but even that wasn't enough and the company filed for bankruptcy in November 1998. Iomega has the advantage that it has a much wider market profile than SyQuest ever had, and that PC vendors continue to want to bundle Zip drives. Iomega also recently announced, at long last, an upgraded version of Zip and finally, after three years of 'it'll be here next year' messages, launched its Clik drive, aimed at the digital camera market. The technology it hopes to buy from what's left of SyQuest should help Iomega increase both the performance and the storage capacity of its products, allowing its drives to keep up with the increases in hard drive capacity, which have long left Jaz and Zip behind. ®
Tony Smith, 22 Jan 1999

Web companies see stocks fall

Net companies have taken a battering on the stock market this morning after a week of hype left many people wondering if the UK was about to experience a US-style boom in technology shares. Dixons -- the company behind the successful free Internet Service Provider (ISP) Freeserve -- fell 61.5p this morning and Internet Technology Group (the company behind Global Internet) saw its shares fall 20 per cent. On-Line -- which operates games on the Internet -- had seen its share price go through the roof this week but it dropped some 44 per cent on the morning's trading. Zergo and Energis -- other Net-related companies that have hogged the financial pages of the daily newspapers during the last five days -- have all fallen back during the morning's trading. The question is, is this the end of the UK's Web-led boomlet? Has the market called time on "Web-crazed investors", as the Daily Mail put it yesterday, even before it really got started? Or, is this just a timely blip to ward off gullible investors who are too easily tempted to back a company -- any company – just as long as it has something to do with the Net? Or, has it got anything to do with the fact that yesterday, stocks in the US -- including Net shares such as Yahoo!, Amazon.com and AOL which all posted large losses -- tumbled as investors indulged in synchronised profit-taking? Who knows? Either way, yesterday's plummet was unfortunate for John F. Luikart, chairman and CEO of Sutro & Co, of one of the oldest and largest regional securities firms in the business. Speaking to an audience of senior financiers yesterday evening, he said the Internet stock bubble was certain to burst. And when it does, the people holding the stocks will suffer huge losses. Nice timing, John. Had he delivered his speech 24 hours earlier, he could have been hailed a financial guru as he spotted the imminent collapse of Net stocks. The fact that he made his prediction after the Dow Jones closed last night just takes the edge off his timely oration. It would be foolhardy to say that the US Net share bubble has burst, but someone, it seems, has definitely let some air out. ®
Tim Richardson, 22 Jan 1999

Microsoft advises mock-police on software theft

Microsoft anti-piracy manager David Gregory has been approached by Pearson Television to be a technical advisor on a future episode of ITV's police drama The Bill. Looking tired after days of crushing counterfeit software and talking and walking around this year's CTS event in Birmingham, Gregory admitted he had been approach to help out the scriptwriters. A spokesperson in The Bill press office confirmed that the writers were looking for help on the software piracy issue, as they believed it would be a "good story line" for the show. "It's a good indication of how serious the issue of software piracy has become," said Gregory, nursing his feet on a comfy sofa of The Metropole Hotel. "It should be good fun." Gregory was last seen talking to his snouts. ®
Marc Ambasna-Jones, 22 Jan 1999

Siemens has week to pay up…

Supreme spin-doctor Peter Mandelson had been in his job for a mere week when Siemens said its semi fab in the North East would shut.
Mike Magee, 22 Jan 1999

Dodgy MS data undermines Schmalensee

For the first time in the case, Judge Jackson used a different form of words at the beginning of the day when he addressed the witness: "I remind you, as I am obliged to do every morning, that you're still under oath." Previously he had not mentioned that he was obliged to do this, but it may give some indication that the judge is finding Richard Schmalensee's evidence hard to swallow. Schmalensee was more cautious when David Boies, the DoJ's special trial counsel, invited him to lecture about the kernel of operating systems. The ready-to-eat breakfast cereal industry expert (on his own admission) suddenly capitulated: "I'm not a computer scientist." He continued to offer replies that drew attention to the slightness of his knowledge about the case, saying for example that he understood the DoJ's case to be that "distribution of Internet Explorer has eliminated consumer choice." He could not remember the broad outline of the Complaint, it appeared. Like any good mercenary, Schmalensee had a curious facility only for seeing his client's best intentions, so when Boies asked him about a document in which Microsoft said it was going to bind IE to the shell "so much that using any other browser would be a jolting experience", Schmalensee interpreted it as Microsoft intending to make IE such an excellent browser (he must have intended to say browsing technology) that "using any other browser would be unpleasant". It just didn't occur to him to see this as a threat to Netscape, except that he added that "the issue here is what they did, not what they said" which seemed to leave the door open. He had "seen no evidence or, indeed, allegation that Microsoft had somehow sabotaged the operation of Netscape on Windows 98" but Boies had not asked him whether he had. This was curious. So far as attempts by Microsoft to sabotage competing products such as QuickTime was concerned, Schmalensee said he did not attach much weight to the claims, which seemed like a judgment that would be better made by a computer scientist. Boies asked how much incremental disk space IE took, and was not happy with the response, so he asked again: "Do you think it is all misleading to reference the one-tenth of one percent that was, in your testimony, removed by Mr Felten when you know that there is much more code in there that could be removed if Microsoft chose to?" Ever-mobile Microsoft attorney Richard Urowsky bounced up to object, saying that Felten had said he was not a computer science expert. Judge Jackson overruled him. IE for Windows 3.x was an application and not part of the operating system, the witness agreed, adding gratuitously that it had "a [sic] different code, it's a different product" which was a bold statement for a non-computer scientist. Moving to the issue of Microsoft's screen restrictions, Schmalensee relied in his testimony on what he had been told by Microsoft. Boies asked if the restrictions were imposed to prevent Netscape's icon being displayed more prominently, and the details were reluctantly dragged from him: Schmalensee: "Well, I did see an email in which one of the Microsoft people reported that they had gone out and bought computers at retail with Windows 95 and found that, on several of them, the Internet Explorer icon was not visible." Boies: When you say one of the Microsoft people - Schmalensee: It was a fairly senior person writing the email. I don't remember who it was. Boies: Maybe somebody as senior as the chief executive officer of the company, sir? Boies then produced an email from Gates, dated 5 January 1996 (not to Gates as Schmalensee said). Gates: "Winning Internet browser share is a very, very important goal for us... apparently a lot of OEMs are bundling non-Microsoft browsers and coming up with offerings with Internet service providers that get displayed on their machines in a far more prominent way than MSN or our Internet browser." Schmalensee maintained that Gates had not mentioned a link between IE icon prominence and screen restrictions. so Boies produced a Microsoft OEM sales mid-year review dated 22 January 1996, a couple of weeks after Gates' complaint, that noted "what we missed in the first half of FY '96" included "control over start-up screens, MSN and IE placement" which proved the link. The unhappiness of OEMs about Microsoft's different policies to favoured OEMs concerning start-up screens was also aired. A 1996 document from HP to Microsoft said: "As was clearly stated on many occasions to you and other members of the OEM team, Microsoft's mandated removal of all OEM boot-sequence and auto-start programs for OEM licensed systems has resulted in significant and costly problems for HP-Pavillion line of retail PCs. . . "If we had a choice of another supplier, based on your actions in this area, I assure you, you would not be our supplier of choice." (HP exec to MS: we'd dump Windows if we could) A new revelation was that Microsoft had started referring its proposed actions to internal lawyers ("the antitrust team") for opinions about antitrust matters before decisions were taken. Joachim Kempin, in charge of OEM sales for Microsoft, agreed in a 12 May 1998 email (just days before the current DoJ case was launched) that Packard Bell, Gateway and Compaq were being allowed to opt out of the referral server infrastructure in Windows 98. Boies asked Schmalensee about the "concern within Microsoft that doing this would undermine Microsoft's purported defence of the screen restrictions as designed to create a consistent windows experience". Schmalensee replied: "Well, what we have to that effect here is - in the paragraph beginning 'Joachim thinks this cave-in... Carl and Kurt inform me that the reaction from Dave Heiner [a Microsoft lawyer] and the antitrust team was negative. Changes like this undermine our whole case in defence of Windows experience.'" Boies produced a Microsoft browser marketing fiscal year 1999 review dated 8 May 1998 which noted that "IE is fundamentally not compelling, not differentiated from Netscape version 4, seen as a commodity." Furthermore, Brad Chase had told Gates in September 1997 that "consistent with other leading studies, Netscape is still perceived among this audience as having 'the best browser' and 'setting standards on the Internet.'" This detracted from the "evidence" that Schmalensee had in his testimony from the "independent" reviews in the trade press that were claimed by Microsoft to make IE the clear winner. Schmalensee back-tracked a little to say that the reviews did not say that IE was not "significantly better", just "better". Then he put his foot in his client's case: "[Saying] 'Netscape has had a material drop in people's perception of the quality of their products' is kind of an interesting perception that is not consistent, frankly, with my understanding of the quality of Netscape's products." It turned out that Schmalensee used Netscape at MIT because it was the preferred browser. The revelations du jour were however reserved for Schmalensee's observations on Microsoft's bookkeeping practices. Boies teased from the reluctant witness that Microsoft had probably spent $500 million on IE development (he bid him up from a starter of $100 million). Boies went on to enquire about IE marketing and distribution costs. There were no figures, Schmalensee said, and "given the way Microsoft tends to do business... [this] is not surprising." His next response was the revelation: "One of the characteristics of this company on a range of issues, including this, is when you say where is the detailed business plan, the detailed study, and all of the arithmetic worked out that I can see, as I might see for the phone company or some other business, there are these incredulous looks. 'How would we do that? We don't do that.' And if they've got such documents on a range of issues, I've never seen them. I've asked." Apart from the issues this raises, like the doubtful value of business plans to outstanding financial success, it hints at Schmalensee's suspicion that he might not have seen everything. He had been told that Microsoft "hadn't done refined calculations" about costs... "they didn't exist". Boies explored Microsoft's original plan to charge for IE in 1995, as part of the code-worded "frosting" addition to Windows 95. As the questioning continued, the suspicion grew stronger that Microsoft had told Schmalensee very little, and had probably held back a great deal from him. Boies introduced excerpts from a new book by Cusumano and Yoffie, but it appeared to offer little that was new, except perhaps to Schmalensee. The language in the book seemed to have been chosen to be sensational and in rather bad taste, for example when it is mentioned that Gates "was willing to sacrifice one child (MSN) to promote a more important one (Internet Explorer)". Allowing AOL to put its icon "on the Windows 95 desktop, perhaps the most expensive real estate in the world..." is not a correct view, as Schmalensee agreed (they should have said the online services folder). It was later admitted that Russ Siegelman, the first general manager of MSN, resigned because of the decision to disadvantage MSN. A long discussion on the merits of different data sets ensued, but the tables referred to were blanked in Schmalensee's direct testimony. The conclusions that could be drawn were that Microsoft did not show Schmalensee all the market data available, and that he laboured with the one set of data that Microsoft had commissioned that was consistent with the view Microsoft wished to project. The detailed work had been done by Schmalensee's "staff" as he was now calling his colleagues from NERA. A weakness of the MDC data (and Judge Jackson asked if the data were "commissioned from a polling firm by Microsoft") was that the AOL respondents to the poll often did not know what browser they were using, so assumptions were made that must cast considerable doubt on the validity of the data set, and the analysis by Schmalensee's staff. The cross-examination turned to profit-maximising issues. Schmalensee's thesis, in his direct testimony, that Microsoft could charge $2,000 for Windows, at least in the short term, did not stand up well to cross examination. The issue as to whether Microsoft is maximising profits turns on more than one factor, it is clear, and these must include a consideration of the long term as well as short term. Schmalensee, Boies said, just assumed that Microsoft was charging a profit-maximising price because he thought that it was sensible to do that. It was not denied. Boies had been very courteous in his treatment of Schmalensee, but could not suppress his incredulity about the claim that Microsoft was not a monopoly. "Sir, you're not telling this court, are you, that you have not been retained by Microsoft to help them convince other people, the FTC, the Justice Department, the court in the Bristol case, this court and other courts, that Microsoft does not have monopoly power? You understand that that's part of what you're doing, don't you?" Schmalensee: Mr. Boies, I have been retained to do economic analysis. I value my professional reputation very highly. I am not giving this because it is in Microsoft's interests. I'm giving this because I believe it to be correct. Boies: Let's see if we could parse that just a little bit, since you brought it up, sir. First, you knew that Microsoft was trying to convince people that it did not have monopoly power; correct? Schmalensee: Correct. Boies: And you knew that that was one of the purposes that Microsoft had for using your testimony; correct? Schmalensee: Correct. Boies: And you knew that your testimony would not be used if you concluded that Microsoft, in fact, had monopoly power; correct? Schmalensee: That was never said to me. It's a reasonable inference as it is with any expert hired by anybody for any purpose. Boies: And when you came up with and used and refined this pricing analysis, you knew that this pricing analysis was going to be used to convince people, or to try to convince, people that Microsoft did not have monopoly power; correct? Schmalensee: I suppose that's correct. The final issue in Boies cross-examination was Microsoft's profits, which had been announced the previous day to be a profit of £2 billion in the quarter, up 75 percent on the previous year. Schmalensee did grudgingly admit that persistent profits were always suggestive of monopoly power. But the most surprising information was that Microsoft had told him that it was not possible to find out how much of Microsoft's reported profits came from operating systems. He did ask, he said, "and I was told the data that's separated in that fashion simply didn't exist." Register readers will know more than Schmalensee, since we presented a breakdown of revenue taken from Microsoft's latest accounts. To divide common expenses, it is not unreasonable to allocate them pro-rata. It does seem that Schmalensee was fobbed off, however, and this merely adds to the suspicion that has always surrounded Microsoft's accounting practices. Boies asked if Schmalensee accepted the results at face value: Schmalensee: I was surprised, but I will be honest with you, the state of Microsoft's internal accounting systems do not always rise to the level of sophistication one might expect from a firm as successful as it is. That explanation is consistent with other information I had received about the nature of their internal systems and records... I was interested in the question of what's a reasonable assumption for the sort of ancillary revenues, say, from applications programs that Microsoft might expect as a consequence of Windows sales. I said, can you separate the company into the two pieces, so I might be able to address that question? The answer was there were a lot of common costs that aren't allocated between those two businesses, and the records just don't let you do it. That seemed to me consistent with the other things I knew about the company. Boies: And just to be clear, you were told that Microsoft doesn't have any records that show how profitable their operating system is, doesn't have any records that show what ancillary revenues or profits it receives, and you accepted that on face value; correct? Schmalensee: Mr. Boies, they record operating system sales by hand on sheets of paper. Under those circumstances, I accepted the absence of a detailed cost allocation system absolutely. Boies chose this most appropriate point to conclude his cross-examination, leaving in the air questions about the legal adequacy of Microsoft's internal systems, and the integrity of its auditors in not qualifying Microsoft's accounts. ® Complete Register trial coverage
Graham Lea, 22 Jan 1999

Ex-Digital resellers up in arms

Former resellers at Digital have received an ultimatum from Compaq that they must move their allegiance and accept those conditions or else. Sources across the world said today they had received a letter from Compaq saying they had one week to shift from the Digital contract to the new one or else. Said the letter, seen by Registerjournalists: "Please be aware that if you chose not to take advantage of this offer and do not return the signed documents as listed above, your membership in the existing ASAP program and all program benefits will conclude on February 1, 1999. "We do however know that you will be delighted with our new program and that taking adventage of charter membership is an offer you can't afford to refuse." Said one reseller: "Considering that failing to accept their gracious offer terminates my rights to use the software development tools I just paid almost $700 to Compaq for the first of December and which I've only had for about three to four weeks, they are amazingly prescient." Compaq had not responded to repeated calls at press time. ®
Mike Magee, 22 Jan 1999

Spanish journalists get Intel dictat

A complex dress code devised by Intel is set to antagonise journalists in Spain, Russia (CIS) and Israel. According to a document The Register saw yesterday, journalists from the former Soviet Union should be approached in the same way as UK and US journalists. (Story: Grove's Intel attacks UK journalism) That means that Intel thinks journalists from Russia, the US and the UK are tarred with the same brush. Advice given to Intel employees when dealing with hacks from the Ukraine and other former territories, says they should never be patronising or arrogant, and praise the progress in the former territories. But Intel should be strident and aggressive with Russian journalists, because they are overworked and underpaid intellectuals, apparently. While Intel employees should always be smartly dressed, Israeli journalists do not seem to care about that. The advice is that positive editorial coverage should not be traded for adverts. However, Intel guidelines for Spanish journalism are remarkable in their details. The document says that Intel women should be well dressed, Spaniards are not interested in technology, and physical contact is common. Shaking hands is an unnecessary formality, we are given to understand. ®
Mike Magee, 22 Jan 1999

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