Silicon Spin 5-18-2001

A French suitor for Lucent, a thumbs down for Palm, Microsoft opens fire on open source, and a green ogre named Shrek tilts his hat to technology. It's all ahead on Silicon Spin's Tech Week in Review.

Now, first, I—

Hello and welcome to Silicon Spin's Tech Week in Review. I'm your host, John C. Dvorak. I'd like to introduce today's panel of guests. Kevin Surace on my left, President and CEO of Perfect Commerce, a B2B infrastructure company. Sheldon Lob over there on the little lobe on the corner, Lob on the lobe, Founder and CEO of Centerbeam, which supports small businesses with hardware and IT needs, whatever that means. And Janet Rae Dupree, Senior Editor of U.S. News and World Report, where she covers technology issues.

Hi.

Any company that loses 80% of its market value could become a bullseye on the buyout map. That's what happened to Lucent Technologies. It's reportedly close to a $40 billion takeover by France's giant Alcatel. No official comment from either side, but one Wall Street expert seems to like the idea. If Alcatel is able to negotiate at a price that does not involve overpaying, it could make sense for Alcatel, and it could end up being a very attractive company 1 to 2 years out after all the integration. Taking advantage of the antitrust window that would be open due to Lucent's very weak financial condition also means the time is probably right. What kind of antitrust issue are we talking about? It's a foreign company. Anyway, investors aren't so sure about the deal. They punished Alcatel and boosted Lucent after the story came out. Sheldon, who wins and who loses in this deal?

Well, I think Lucent's going to win because they're in big trouble. And I think if you look back over the last year, it's clear they're foundering. They don't know what to do. And I think what's going on here is the board of Lucent is looking for somebody who at least has an idea of how to put it together and how to make something out of it.

Why are they in trouble?

They're in trouble because—

I mean, they were a big darling like 2 years ago.

They were a great darling. All the people who bought their stuff, they spent a lot of money financing people like DSL carriers, all of the alternative communication companies, which are all going out of business. And all those people who both owed them a fortune and were the basis of their sales have dried up.

Yeah, you gotta remember, I mean, everybody was darling 2 years ago. Just say the word technology and you're done.

Well, you guys were like really darling.

Yeah, yeah, really darling.

The entire communications equipment thing is down, and on top of that, they lost some of their top people to other companies like Carly Fiorina. And you got people like Cisco now, you know, taking the majority of market share in the places where they compete with Lucent. So the combination of all of those is just eating their lunch. just eating their lunch.

They have to do something. So is this Alcatel deal a good idea?

Yeah, something— anything's a good idea at this point. Yeah, I don't have—

How come Alcatel hasn't suffered any, you know, downturn here?

They're not as mismanaged as Lucent is.

It's a French company. How can that be?

Well, it's a French company, and I think that's key. I think what's been happening is a lot of the technology companies here in the United States have been falling a lot faster, a lot farther than some of the foreign countries have. So Alcatel still is working from kind of a tenuous position of strength. And so if they bring in Lucent and maybe begin to consolidate some of that, they might be a little more successful than Lucent by itself, standing alone. But I think that Alcatel and some of the other foreign countries and companies are also going to fall prey to the same thing that's been impacting us. So it's not necessarily a steal.

Yeah, but it's always cool if the Americans can get these guys— get some foreign money in there to buy us out and then let the whole thing sink. Anyway, changing topics, Sharp has joined the list of notebook makers agreeing to use Transmeta's Crusoe chips in its notebooks. NEC, Fujitsu, Sony, Toshiba, and Hitachi are already on board. Kevin, will that lead to success in the States? These are all Japanese companies.

Yeah, uh, well, you know, the Japanese lead in, uh, in thin notebooks. If you look, Sharp's had, uh, the Actya series out there for 2 or 3 years. I think I, I had one of those myself. Fujitsu's got them, NEC's got them. They've led in, in low-power, small battery, thin notebooks. They have done that for, for several years. So they're the, they're the obvious people to go ahead and try this Transmeta stuff. Now that said—

Who uses those notebooks? You said you used one?

I got a Fujitsu now. Yeah, very, very good. And who do you think makes them for people like Dell and Compaq?

Those super thin ones? Dell's—

They source them out in Japan.

So you'll see them because that's who knows how to make these super thin notebooks that people carry around. I carried it around for years. Of course, you know, it's really simple. As you get older and older, you get weaker and weaker. So you look for short—

3 pounds is better than 3 ounces.

Now here's the question though.

Why aren't they choosing Intel? Why aren't they choosing AMD? Because Intel was a little late to market. With some of their low-power processors, which they just got out in the last few months. So Transmeta's got a little— I don't know. I mean, I'm not a big— I wouldn't be betting on Transmeta as a big business because Intel just has too much R&D and they're not going to lose that segment.

And I still think that Transmeta's not necessarily going to do as well as people seem to think. I'm kind of leery about Transmeta and I can't really put my finger on exactly why, but I think that they're probably making a mistake if they're going too deeply into—

Wait till there's some instruction set incompatibility that nobody— it's over, right? Because then you can't use it.

I think the big problem is early on it was supposed to be, we're gonna get 2 and 3 times the battery life. And now that people are actually producing the machines, it's like, you know, 10% better. And that's not enough. Intel will come back and they're gonna beat them, and they got the size and scale to it.

Yeah, you guys sound like a bunch of Nazis from Silicon Valley. Hey, we'd like to know what you think about this week's tech topics. You can join the discussion at our website. Just log on to siliconspin.com to take part in our live chat. And while you're there, be sure to vote in today's viewer poll. And today's question will be, the Fed cut interest rates for the 5th time this year, but will that save the markets and the bacon, as it were? Tell us what you think. Up next, is Palm in trouble? Stay with us. Welcome back. Things are getting hairy at Palm. It slashed its revenue forecast and watched its stock Palm stock dip to an all-time low. It's stuck with a huge inventory of older PDAs, and consumers have been waiting— at least that's what some people believe— they've been waiting for the new M500 family of handhelds. Now it's offering a $200 rebate on its wireless model, which seems like a reasonable deal to me. The company projects a dismal 4th quarter with revenue just 25% of what it was a year ago. Gee, Janet, is it time to buy a Palm handheld and its stock?

Well, It's not time to buy the stock.

I'm not actually sure that that's correct about the 25%.

I think, I think that maybe the market is being too harsh on Palm. I think that we still have an emerging, evolving industry and that people ought to look at the fact that there are already 13 million Palms out there. And the more people using Palms, the more people want to buy Palms. I was just interviewing some folks at a school district in Orland Park, Illinois, who have deployed Palms. across the high schools, the kids are all using the Palms.

And that's great, Janet, because that'll be their last customers, probably.

Exactly.

Why, you have a dim view. I don't— I think—

I have a dim view.

What I'm trying to say is that gets them started very young. They get committed to the OS.

That's the old Apple Macintosh thing, I know, and then you get 5% of the market.

No, that's the old drug thing. You start them off—

Here's the problem.

Well, let's hear what the problem is.

Palm hasn't updated their OS in 3 or 4 years.

And why should they?

No major update. Well, that's a problem, because if you don't keep updating, you don't attract new customers to buy the device.

I'm just telling you.

Well, that's, that's just the way it works. All right, number 2. All right, number 2. Windows has continued to update. You can all argue about, uh, the little handheld WinC's, the iPAQ, etc., but the sales of that are increasing and continuing to increase.

Oh yeah, they've gone from 3 to 6.

And last but not least, corporate America has figured out that the RIM pager does about most of what you actually need to do when you're on the road.

Actually, that could be a problem. I would agree with you on that because I know a lot of guys who—

The RIM pager is a great product.

I know a lot of guys who've compared these things. They've got the RIM pager and they say, you know, I can do whatever I can do.

You get your email, you respond, you don't need the Palm anymore. You don't need to learn the thing, you don't need to You can do anything. You can do everything you want right there.

But now, by your argument, since RIM hasn't updated its operating system, they're out of business tomorrow.

But they don't try to be a real OS. Palm tried to do an awful lot of things. RIM just says, we get your email and we sync your calendar. Good enough. You do it nationwide. Done. And that's 90% of what I need when I'm on the road.

Yeah, I really think what's happened is people have started to realize the real value is being, being connected. It's just like a cell phone. And that's why cell phones are so popular. That's why RIMs are so popular. And Palm's biggest mistake is they haven't competed yet. The Palm VII is not good enough, and I think Handspring's gonna be in the same sort of terrible trouble because it's not a native wireless device. It doesn't work the same way as a RIM does, which was designed to be wireless. That's why people love it.

The Palm VII, with the rebates and the price cuts they have, is now down to $99 for a Palm VII.

That's a steal. That is a steal.

That is a— that's a really good price. And the other thing about the Palm platform that people don't take into account is there are 8,000, 10,000 different applications you can get.

But you know, you're not gonna use them all. But you don't have to use all of them.

Each person is going to want a different functionality within their device, and they have that on the Palm OS.

You know, I actually agree with everybody here in an odd way. I think that's cool that they have all these things, but at the same time, I was thinking about my own usage recently, and I just stopped downloading those programs. In fact, I wrote a column in Shopper coming up called Technology Fatigue Syndrome, where you just get sick of it. You got, for one thing, you got, if you, sometimes you will update your Pilot Or your Palm, and it'll, uh, or say it goes dead and you have to download it, you have to download all the stuff again and reconfigure it. It's just, it's too much work.

You're going to carry around that BlackBerry, get your email, sync your calendar, you're done. That's 90% of what people want. 90%.

I use probably 4 or 5 aftermarket apps in, you know, my Visor.

Have you used a BlackBerry?

Oh yeah, and I loved it, but it was just too expensive. I mean, paying another monthly fee. Interesting.

Oh, so your Palm's disconnected. You don't have a 7?

Oh, you have an old-fashioned one?

Yeah, I have an old-fashioned one. It does everything I need to do, and then I use the cell phone sometimes with infrared anytime I want to do some communications online. Works well.

I think if they put a phone in the Palm, I think that there's something—

Well, they did that.

Yeah, yeah, I know. That Qualcomm thing was so big that you might as well say it's a World War II.

The KISS Air smartphone. Have you seen that thing? It's really not that big. It's about the size of one of those medium phones. You can actually stick it in your pocket and you flip it open and it's a Palm. It has all the same functionality with a screen size.

Is it the same as the Palm OS?

Except that it's a Sprint phone, and so it means it only works in some small fraction of the US.

Actually, it also works on Verizon network now, and they're moving to some of the other networks.

It works everywhere.

All right, we got another low topic we want to get to just really quickly. Webvan's former CEO George Shaheen was granted a sweet deal for leaving the company— $375,000 a year for life. Priceline CEO was given a golden handshake also when he quit. These Companies lost big and their stock prices are in the tank. Sheldon, are these kinds of deals— sit well with shareholders? I think it's just disgusting.

It doesn't sit well with shareholders. It doesn't sit well with anyone, especially because—

How do you do that deal? You're in boardrooms. How does that deal happen in the boardroom? What goes on?

What goes on is 2 years ago people said, we gotta get the best people in the world no matter how much it costs. There were people like David Byrne. He was a big VC, big recruiter. He would give speeches saying, it doesn't matter how much you have to pay, pay whatever you need to get the best people. Yeah, but that was in a world where the stock would never go down. Money was free.

Yeah, that was giving money during an upswing. But now, what happens in the boardroom that— what happens in the boardroom—

The deal was cut 2 years ago.

Those contracts were written. He was going to get that money whenever he left.

That's because, remember, George came from Andersen Consulting. where he made $4 million a year and was guaranteed a retirement. And when you leave places like Andersen Consulting or PricewaterhouseCoopers, you give up your entire retirement.

It's worse. Andersen became Accenture. You know, they filed for their IPO. He really walked away from half a billion dollars or some wacky number like that, right? For $375K a year, he, you know, he's going, this is a—

this is only $3 million every decade, so it's not that much.

Well, it's also only as good as how long Webvan's in existence. It's really for their—

It's the life of Webvan.

The life of Webvan.

Well, yeah, it could be. Oh, is it? Oh, is that right? Oh, well, then—

Well, they can't pay it after they— No one around to pay for it.

How about that being escrow?

I don't know.

I thought maybe it was an annuity, that they actually had to purchase an annuity.

That would be good.

No, that they didn't do.

I could go for that right here on Silicon Spin. Anyway, coming up next, Microsoft's antitrust enemies are out with a new accusation. Stay with us. Welcome back. 3 years ago Saturday, the Justice Department fired— filed antitrust charges. Microsoft was accused of being the bully of the browser world. Now it's being fingered as the internet intimidator. Its .NET initiative, whatever it does, has attracted the ire of ProComp, a group funded by Microsoft competitors. They'll compete with anything. They're upset that the company plans to convert its consumer software, online calendars, and instant messaging into fee-based web services. Why don't they come up with something better if they don't like it? They say Microsoft is trying to take over the web. Right. Kevin, what do you think?

I think they're sore losers. I mean, you know, the fact of the matter is, is anyone who's in the apps business today is going to put the things online and offer them as an ASP.

Well, you know what the real problem is here? I don't know if you're familiar with this, but XP's coming out with the Office version.

Yeah, yeah.

And you used to be able to share folders on LAN, right? Now you can't. It has to be served through the .NET thing. Well, either that or on an NT server someplace. You can't just— I can't just say, Sheldon, you can have access to my folder and you can change my calendar. You can't do that anymore. Well, which is like, just stop buying the product.

Then stop buying the product. Buy another. Is there a better calendar out there? Go buy it. There are 5 or 6 better calendars.

I use the one on the Palm.

Fine.

Then use something else. It's up to the user. But corporate America is probably going to buy Microsoft product. They're probably going to buy web-connected versions, and that's going to be it.

They are.

You can't give this stuff away for free anymore.

Everybody's figured that out. Yahoo's revenues are going down. The new guy came in and said, we're gonna start charging for this stuff. And all that happened is Microsoft said, it's over, the free ride is finished, you're gonna have to pay if you want this stuff.

Yeah, but fee-based web services still aren't doing very well. So if this is Microsoft's ploy to get a monopoly, it's not gonna work.

They're not gonna get a monopoly.

Then they're not gonna win. Then what are they complaining about?

Exactly.

See, but they're saying they're gonna take over by charging.

Well, you know what's gonna happen, even though this has been— no one's brought this issue up, some hacker's gonna go in there and he's gonna say, well, we can fix this so you don't have to use this. You can still go back to sharing folders, and there's gonna be a patch on the market which will probably violate the license, but no one's gonna pay attention to that. And boom, it's gonna be back to where it was before.

Well, you'll get like a blue box, you know, remember when you used to be able to hack the phone system?

This also goes back to—

No, I don't remember that.

We had a debate over ASPs a few weeks ago where we were pointing out that the network itself is not all that reliable. So what happens when the network goes down, you come to a screeching halt. You lose your applications, you lose access to your information.

I think the competitors shouldn't worry about it. Microsoft has a right to do that. It's not going to make them monopolize the web, that's for sure. And some people will use it, some people won't.

And you know what, people aren't going to go— I mean, it's going to cause Microsoft more of a headache than anything else.

Probably.

And Microsoft, meanwhile, is doing some whining of its own. Senior Vice President Craig Mundie recently trash-talked Linux. I don't know what the big deal is here, why they have to do this. Anyway, he called the open source movement flimsy, flawed, and a fundamental threat To the software industry. Linux developer Linus Torvalds calls the comments unfounded. Janet, what do you think of this little tepidity?

Shades of Bill Gates' letter from, what, 20, 25 years ago? That's my software, don't you steal it! I don't know, they're just— it's sort of like the, uh, the, the school bully complaining that the school weakling is trying to do something unique or unusual. It's, it's ridiculous. I think open source is a very interesting effort to do something a little bit different from what Microsoft has made the industry into. And, uh, even if it's not going to be terribly successful, I still think it's important.

You guys are naysayers about open source? I never could figure out earlier what you were saying. Absolutely.

I think it is a fundamentally flawed model because the people who do the work don't reap the rewards. Sooner or later, in a free economy—

Why is it so— there's so many guys out there who know what they're talking about that think this, this model is a fantastic one.

No, no, no, they don't know what they're talking about.

But they don't make any money. The companies, one after another, were going out of business. Just recently, Easel, really cool, the hottest Linux startup. It just went out of money because their model is we're going to give away this new user interface. And no one— and everybody said, you know, we can't figure out how you make money. They're out of business.

Microsoft spends billions of dollars a year on R&D to get their products as compatible and as reliable as possible. That's not going to happen by handing it out to 60,000 software developers who dink with the code. It's not going to happen.

But what I don't follow is why Microsoft is even bothering I don't know why they're complaining about open source. Open source isn't really going to be around for long.

But that's actually the issue.

So what's the point?

Why is Microsoft protesting so much if what you guys say is true? It doesn't sound right. There must be something to it.

You got me.

You know, the only thing that's to it is, is in server land, for certain applications, Linux has done a very fine job. And you see Linux not at the desktop as much and not in the places people thought it was going to, but it's on servers and people are using it for embedded apps. And that's, you know, that's not a bad place to be.

I saw a lot of embedded systems. systems with Linux being introduced, but that doesn't necessarily mean that the whole open source movement is going to be all that successful.

Yeah, I agree as well. Intel Wind River does the best job with the embedded stuff.

Always did. Always did. And that's a proprietary software product. And they make money on it.

Yes.

Amazing.

Amazing. See, making money—

Yeah, I have no— believe me, I have nothing to argue about making money. I think it's a great—

I think they give away their source code to that thing.

They do give— well, they don't give it away, but they do provide it.

They will provide it as a license for you under a particular scenario, but they don't put it on the web for everybody to play with. No, because then the cat's out of the bag. It's over. You have no business.

It's not over.

Well, if you give the thing— if you give the thing away to everyone in the universe—

You don't give it away. The Linux thing is not completely given away. It's got this special license agreement where you can't, like, modify it without giving your source code away too. What's it called? The public license or something?

The general public license.

Yeah, yeah, yeah.

You know, Microsoft has some interesting points about the security issues involved with some of the open-source software, but I just don't see the adoption being as broad-based as Microsoft seems to be fearing.

Yeah, I don't know. I'll tell you, we're going to get back to this story because it's a fishy story. And when we come back, why Americans could lay out $30 million this weekend and how high-tech, or the tech industry, played a role.

You didn't slay the dragon?

It's on my to-do list. By all accounts, Shrek is going to be a box office monster, opening on 3,700 screens. The first animated feature invited to the Cannes Film Festival. Voices by Mike Myers, Eddie Murphy, and Cameron Diaz. It's the product of 3 years of frame-by-frame animation that gave— that came from the company that gave us Antz. This time they say they got the bugs out. Believable human characters as the, as the stars of the film hadn't been done before. We don't get the right, you know, motion to it, or the hair doesn't look quite right, or that someone doesn't have the right gleam in their eye, you're gonna say, you know, something's just not right.

We've taken it farther than we have.

So as we have a technical foul-up, did anybody see this as being a big hit?

I think it'll be a great hit.

Big hit.

I've seen some previews from it. It was really— it's terrific. It's terrific rendering. And as a matter of fact, interestingly enough, all the animation is done with Linux machines instead of SGI machines.

Well, now isn't that interesting, this open source thing that you don't like. You said earlier, we didn't get to talk about this, this, that you thought Linux was going to be a dog on the desktop forever.

It is a dog on the desktop now and forever because it's really hard to make stuff that people can use. Geeks only write for other geeks. In order to make stuff that normal people can use, you've got to get ungeeks. And there are no normal people in the Linux movement. There are only geeks.

You going to go see this movie?

Absolutely. I think it'll be great.

A great film. Looking at the— there's a story I heard about it.

It's a great film. It's a cartoon.

Yeah, look, I know. But from what I heard is that the gal, Cameron Diaz, character looked so real that they actually had to pull her back a little bit, make her look a little more cartoony.

Yeah, you believe this story.

That's the story that's running around.

Yeah, right.

Look at the facial expressions. It's actually unbelievable.

And just— well, then eventually they can get rid of Cameron Diaz. It'll be all people doing voiceovers.

Yes.

You think this is good?

I didn't say it's good. I said it'll happen.

It'll happen.

I'm pleased to see PDI actually getting something out there that has a chance of being a big blockbuster hit. I mean, after Antz— Antz was was technically marvelous.

It just wasn't a particularly good movie. I liked it. Woody Allen was funny.

They said the storyline of this is great, the jokes are great, it works for adults, it works— there's double entendres that adults understand.

Well, you guys, we'll try to get you passes. Anyway, that's, that's it for today. I'd like to thank our guests: Kevin Surace, president and CEO of Perfect, uh, Perfect Commerce, or Perfect—

Perfect Commerce.

Okay. Sheldon Lob, founder and CEO of Centerbeam, and Janet Ray, Thank you. Thank you, Peter Dupree, senior editor with U.S. News and World Report. If you'd like to explore these topics further, head to our website to check out our fact sheet. This is a new thing. Go there and hang out. It offers links and resources about each of these issues. And let's see what our— today's polls are. We asked if the most recent interest rate cut would save the markets, and being depressed, I guess, you guys, 33% said yes. And the other 67% said no. Okay, well, I think the market is saving itself. Anyway, I'm John C. Dvorak. Join us again next week for another Silicon Spin.