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December 27, 2002—In this issue:
1. SHORT TAKES
- Tennessee Case Against Microsoft Granted Class-Action Status
- Citing Strong Demand, Toshiba Increases Tablet PC Production
- Microsoft in Macromedia Buyout Rumor
- Video-Game Makers Recoil from Xbox, GameCube Sales
- Microsoft Reconsiders Stock Dividends
- Microsoft Denies Aiding Israeli Spying
- To Sell Xbox in Europe, Microsoft Turns to the Movies
- Microsoft Releases DirectX 9.0
- Holiday 2002: Boom or Bust?
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1. SHORT TAKES
(An often-irreverent look at some of the week's other stories, contributed by Paul Thurrott, [email protected])
A county circuit judge ruled this week that a Tennessee lawsuit against Microsoft is eligible for class-action status. The lawsuit, which Nashville lawyers launched 3 years ago in the wake of Microsoft's antitrust case, claims the company overcharged individuals, businesses, and other entities for Windows during a 7-year period. The state is now wrestling with the best method of alerting potential plaintiffs, who could number in the hundreds of thousands.
Toshiba said earlier this week that it's increasing Tablet PC production by 35 percent, thanks to better-than-expected demand in the retail and direct-sales channels. Toshiba's Portege 3500 is perhaps the most traditional Tablet PC laptop-type design; it features a 12" screen (compared with 10" screens on most other tablets). The machine's design gives it an advantage because it operates like a typical midsized laptop without any of the performance and usability compromises inherent in smaller tablet devices.
A rumor is making the rounds this week about a possible Microsoft buyout of Macromedia. According to the rumor, Microsoft is considering the purchase so that it can wrest control of Macromedia Flash MX, which Web developers use to create interactive Web sites or Web-based animations and competes with Sun Microsystems' Java tool. But doubters point out that Macromedia also creates a lot of other tools, such as Macromedia ColdFusion MX, that either compete with Microsoft products or have little place in Microsoft's lineup. For those who believe Macromedia's products aren't a natural fit at Microsoft, however, consider this fact: A current Macromedia security warning says that every Macromedia Flash Player distributed before December 2002 is vulnerable to a buffer-overflow exploit that intruders can use to completely take over users' systems. Sounds like a Microsoft product to me.
One of the problems with a 3-way race in the video-game console market is that the company or companies that don't control the lion's share of the market face the possibility of third-party software makers abandoning their platforms. That possibility is getting ever closer for also-rans Microsoft's Xbox and Nintendo GameCube, which are withering under the domination of Sony's PlayStation 2. According to game-makers Activision, Midway Games, and THQ, game sales on the Xbox and GameCube are so weak that the companies are losing money or seeing sales slow dramatically. Overall, the game industry will experience 20 percent sales growth compared with last year, but if most of that growth occurs on the PlayStation 2, the race is over. Publishers will stop supporting the competition, and shelf space for the Xbox and GameCube will continue to shrink. The post-Christmas sales examinations should be interesting this year.
Despite its strong public stance against issuing stock dividends to shareholders, Microsoft is reportedly considering paying a dividend for the first time, and the company is quietly polling money managers about the process. As you might recall, Microsoft is sitting on a whopping $41 billion in cash, which the company says it needs for several reasons, including the possibility of massive cash payouts to plaintiffs in the many lawsuits that arose out of the company's loss in the federal antitrust case. But $41 billion goes a long way, and financial experts say that amount of money is more than twice as much as the company really needs. Besides, paying dividends will attract investors, which could trigger excitement about Microsoft's long-suffering stock.
Microsoft's Riyadh, Saudi Arabia, office denied this week that the software giant is helping Israel spy on Arab Web sites. "Microsoft does not develop software programs especially for military purposes, but at the same time has no restrictions for its use in this field," wrote Fahd al-Sudairi, marketing manager of Microsoft Arabia, in a statement. Last week, an Arab Web site first posted the statements about Microsoft aiding Israel, claiming that special Microsoft software is tracing thousands of Arab Web sites. Given the state of relations in that part of the world, I guess something like this could happen. But the image of everyone's favorite software giant partaking in real-life spy shenanigans is hard to believe.
To help sales of its flagging Xbox video-game system in Europe, Microsoft has commissioned a short film about trendy teenagers. The movie will be distributed as a DVD inserted in video-game magazines, holiday catalogs, and direct-mail pieces. The DVD movie is interactive; viewers can click on certain items during the course of the film and learn more about the Xbox's better graphics power and other features. The DVD's interactivity makes it unique, and its success could launch a new era in advertising.
Last week, Microsoft released DirectX 9.0, the latest version of its multimedia and gaming-system software. DirectX has risen from an also-ran to being the premier PC gaming technology, but because it's included with games that require the technology, I don't understand why anyone would need to download the software separately. You can download DirectX 9.0 today, but it won't improve the performance, graphics, or sound on any current games. So why bother? This week, posts about the release on many Windows enthusiast Web sites included breathless subject lines with multiple exclamation points; I don't see the big deal. But if you simply have to get it, check out the Microsoft Web site.
Christmas has come and gone, although analysts still need to sort out the after-effects of holiday sales—that all-important end-of-year sales balloon that's supposed to save companies that couldn't make money the rest of the year. Recent years have been especially harsh for retail stores, although online sales have been rising steadily year over year. And 2002 looks no different, with Amazon.com and Microsoft's MSN unit reporting sharp increases in holiday sales. Amazon.com says that it experienced its busiest holiday season ever with customers ordering more than 56 million items between November 1 and December 23. Top sellers included the "The Lord of the Rings—The Fellowship of the Ring" and "Star Wars—Episode II: Attack of the Clones" DVDs; a $30 Calphalon saucepan; and books by Janet Evanovich, James Patterson, and Allison Pearson. Meanwhile, Microsoft announced that MSN Shopping online sales racked up a record $10.7 billion in the United States, with apparel sales overtaking consumer electronics for the number-one sales spot. Other bestsellers included DVD movies, music, books, digital cameras, MP3 players, wireless-networking hardware, and (ahem) Xbox systems. Brick-and-mortar businesses didn't do as well, although a few results are in. Even though Wal-Mart lowered its holiday sales forecast, it will still experience a sales increase compared with last year. Financial experts say the shorter-than-usual time between Thanksgiving and Christmas also hurt retail stores.
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