Silicon Valley Watcher - reporting on the business of technology and media: News Watch Archives

Newswatch: Monday, 8/21/06

By Richard Koman for SiliconValleyWatcher

The Chronicle profiles Metro-Fi, which has built a huge Silicon Valley free wireless network, covering most of Santa Clara county. The question is is there a business model in free? Metro-Fi CEO Chuck Haas says there is:

"There is no proven Wi-Fi model yet, but we believe free is the best. Everyone loves free. You don't have to pull out your credit card if you just want to use your laptop," said Haas. "If you're on for an hour at Starbucks, our incremental cost is zero. We may have made only a dime or a quarter off of you, but do that many times and you can see that's a good business model."

... Salesforce.com clears 500,000 subscribers as revenues rose 64% in Q2. The company still took a $1.3 million loss for the quarter. Reports Silicon.com: Ovum analyst David Bradshaw said Oracle, Microsoft and SAP don't "seem to be casting any shadows on Salesforce.com's field" and the software as service model "continues to attract ever more customers, forcing everyone in the CRM market and beyond to take this business model increasingly seriously."

... The day after Integrated Silicon Solutions announced it would not file its quarterly report because of stock options questions, investor Bryant Riley bought up almost 200,000 shares, as the price slipped nine percent. Now, with 12 percent of the company in his hands, the Mercury News reports, Riley is moving to remake the board. Riley wants to get rid of five board members, replace them with himself and two others, and cut the size of the board by two.

... Google insiders have dumped some $7.4 billion since Feb. 2005, Bloomberg's Mark Gilbert notes. Larry Page has realized about $2 billion and Sergey Brin $1.9 billion. Eric Schmidt has only cashed out $650 million. Not a single share has been bought in that time. Gilbert thinks the insider selling has been a major factor in Google's declining share price. Forget about fundamentals, he says. The question is, do Larry and Sergey have enough walking-around money yet?

Posted by Richard Koman on August 21, 2006 8:38 AM | Permalink | Comments (1) | TrackBacks (0)

Quattrone is back

By Richard Koman for SiliconValleyWatcher

The government dropped all obstruction-of-justice charges against Frank Quattrone yesterday, and he doesn't have to admit culpability. All he has to do is stay out of trouble for a year. The Chronicle has Valley insiders going ga-ga over the news. Frank McNamee: "The US economy needs people like Frank Quattrone." Mark Lehmann of JMP Securities: "People are getting excited about the possibility that we may have a chance to revive the tech market."

And the Mercury has VC Bill Burnham: "Out here in Silicon Valley, I don't think there's anybody who is not going to welcome him with open arms, and there's a tremendous amount of sympathy. I think he can do whatever he wants to do.''

Not a good thing, says Dan Gillmor : "The record is clear enough that Quattrone and his "Friends of Frank" did disgraceful things. Now he'll be back to a hero's welcome. Sadly, that speaks speaks volumes about the valley."

BusinessWeek's Peter Burrows sees it as a sign of government impotence:

If a supposedly strong case against Quattrone ended with such a wimper, what does the future hold for companies currently implicated in the stock options scandal? It's a safe bet that most of the 80 or so companies that face federal probes will never result in anything approaching what Quattrone faced--no criminal charges, grand jury indictments, even a conviction later overturned on appeal. Most of those companies will restate their earnings, and in some cases pay a penalty to settle civil charges from the SEC

Posted by Richard Koman on August 23, 2006 8:56 AM | Permalink | Comments (0) | TrackBacks (0)

More Sony battery recalls - a safer alternative exists

By Richard Koman for SiliconValleyWatcher

I need to buy a new Windows laptop. My last laptop just died when the hard drive went south. I resurrected an iBook G3 running 10.2 for now. And I need Windows because a) I need to run a Windows-only app and b) I can get one for $500. But now when I choose which one to get, I need to check the manufacturer of the battery. I really don't want it to be made by Sony.

That's because Apple just recalled 1.8 million batteries, a week after Dell recalled 4.1 million. Both batteries were made by Sony and they both suffer from the same defect - which contained tiny metal impurities that lead to overheating.

Did you see that picture in the Times of the burnt-out truck? That guy had been running his Dell laptop on his front seat and kept ammo in his glove box. Trouble. Does this make you think twice about your next laptop? Will this bad news turn into a major drag on the PC makers?

Sony says other manufacturers won't have this same problem, but USAToday quotes Roger Kay as saying: "Sony battery impurities are strewn across the land."

Sony fell 2.4 percent to 4,980 yen at 2:43 p.m. in Tokyo, Bloomberg reports. Sony will take a $257 million hit on the problems.

What exactly's the problem? MIT Technology Review explains that safer battery materials are available now.

According to Yet-Ming Chiang, materials science and engineering professor at MIT and a founder of A123 [one of the leading companies in the new lithium-ion technology], the cobalt-oxide or related oxide materials typically used in lithium-ion batteries become unstable if overcharged or overheated, which can happen in the case of battery damage or a fault in the manufacturing process that leads to an internal short. The unstable materials release oxygen, oxidizing other materials in the battery, which in turn produces more heat. The cycle continues in a process called "thermal runaway," which in some cases can lead to a violent explosion.
In the new lithium-ion batteries, cobalt oxide is replaced with iron phosphate, a much more stable material. Indeed, a traditional lithium-ion battery will burst into flames in abuse tests, such as being pierced by a nail. But the new materials show little reaction at all.

These new companies likely cannot meet the supply needs of Apple and Dell, but will the Valley demand that Sony and other big guys move to safer technology or will they accept Sony's assurances that this won't happen anymore?

Posted by Richard Koman on August 25, 2006 11:21 AM | Permalink | Comments (1) | TrackBacks (0)

Backdating at Pixar could still ensnare Jobs

It's never a great idea for a multibillion corporation to have an irreplaceable leader. But clearly, that is the case for Apple. What would the investment community think of Apple if Jobs were gone? Who is the brilliant lieutenant who will lead the company past Jobs' 70s?

The question is worth raising after Richard Farmer at Merrill Lynch issued a report that raises the possibility that Jobs was involved in options backdating at Pixar - a revelation that could possibly endanger his role at Apple.

"We believe there are not yet enough facts to form a conclusion on whether key executives might have been involved in creating options irregularities at Apple or Pixar, and our default assumption is that Jobs is not likely to have been involved; however, our review of Pixar disclosures does not allow us to rule out the possibility, given Jobs was a member of the board that made options decisions, and our analysis suggests these may contain irregularities.
[The question] "is whether he knowingly participated in creating option irregularities (at either Apple or Pixar) in a way that constitutes serious direct personal misconduct, which could lead the SEC to take legal action against him, including potentially barring his ability to serve as a director, officer, or financial reporting executive of any public company, including Apple."

(via San Francisco Chronicle)

Options backdating at Pixar seems likely, Farmer says. Five of the seven options grants made between 1997 and 2004 were recorded at the lowest price within months of time they were granted and four of the grants were at the lowest price in the entire fiscal year in which the grant occurred.

The Chronicle looked at Pixar's proxy statements and finds that Pixar's two-person compensation committee didn't meet during those years but Pixar's board handled compensation issues. The board members were Jobs, former Apple CFO Joe Graziano, entertainment lawyer Skip Brittenham and Larry Sonsini, a close advisor of Jobs' who was also involved in Brocade's backdating troubles, which led to prosecution of ex-CEO Greg Reyes.

Backdating is not illegal but failure to properly account for it is. If Jobs approved the backdating and failed to provide the accounting oversight, Apple could still get caught up in the options mess - albeit through the side door.

Posted by Richard Koman on August 28, 2006 12:01 AM | Permalink | Comments (1) | TrackBacks (0)

Are these the top Web 2.0 companies?

By Richard Koman for SiliconValleyWatcher

In today's Chronicle, Dan Fost and Ellen Lee offer snapshots of what they think are the Web 2.0 startups on the move. What strikes most is that most of these apps leave me cold.

The one that perked my interest was popURLs, a competitor to NetVibes, which I looked at here. I guess I'm just a shut-in but I don't see myself spending a lot of time sharing music with friends online or watching their photos go by.

And with so many Web 2.0 offerings, how would you ever get all the people you care about to standardize on one solution? That said, I will try to spend some time with these and other W2 sites in coming days and offer some better perspective. Here's the Chron's top picks (and my comments):

StumbleUpon - rate and recommend websites as you stumble around the Net. How is it better than delicious?
Meebo - check all your instant messages without having to run four different clients. Useful, but not exciting.
imeem - Social networking. Lucaso says its built-in IM makes it great.
Slide - set photos from any website to slide by your screen all the time.
Dabble - Kind of delicious/Digg for online video, it makes sense.
Pandora - This is what Cory Doctorow was talking about eight years ago or so. Collaborative filtering to make an online radio station you really want to listen to. Problem back then was Cory was talking about P2P downloading of MP3s. A non-starter.
Eyespot - Online video editing.
Songbird - Play music from many sources
Twitter - Text message to groups of people's cellphones. No doubt handy for deploying smartmobs.
Revver - Online video site

Posted by Richard Koman on August 28, 2006 7:06 AM | Permalink | Comments (3) | TrackBacks (0)

Sony says battery problem fixed... but is it safe to fly with them?

Sony sent SVW the following statement saying all is now well. However, the issue of airplane safety with these batteries is still up in the air. I'm told there will be an official ruling on this very soon.

UPDATE: Statement Regarding Status of Battery Recall Including Information for Consumers Who May be Impacted
By Tom Foremski - August 28, 2006 | Permalink | Comment on this post | News Watch
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Continue reading "Sony says battery problem fixed... but is it safe to fly with them?" »

Posted by Tom Foremski on August 28, 2006 6:07 PM | Permalink | Comments (1) | TrackBacks (0)

Lycos chooses blinkx.tv for video search

Blinkx has modest ambitions, it wants to be the Google-for-video-search engine. It is on the right road, it just signed a big deal with Lycos, the 15th largest web site operator.

I spoke earlier today with a very excited Suranga Chandratillake, founder and CTO of blinkx. "This is our largest deal so far. We'll get to share in the advertising, and since we rely on viral marketing, we'll be able to get our name out to a much larger audience."

Blinkx uses voice recognition technology, plus tags, and user generated meta data to index videos. And with all the YouTube generated frenzy around online video, there are a lot of large and small companies that'll be needing video search capabilities.

I love the "video wall" on Blinkx's home page, you just scroll across and up pop videos and TV news reports from around the world.

Link to blinkx.tv

Lycos has been announcing quite a lot of video related activities:

August 2006
LYCOS ENHANCES BROADBAND HIGH QUALITY VIDEO CONTENT WITH LAUNCH OF UPDATE HOLLYWOOD, WITH MARTIN GROVE - 8.07.06
June 2006
LYCOS AND PERMISSIONTV TEAM UP TO BRING HIGH QUALITY VIDEO PLATFORM TO THE WEB, WITH LOOK AND FEEL OF TV - 6.20.06
Lycos kicks off "World Cup" mania with behind the scenes video coverage of all the craziness & none of the scores - 6.14.06

Posted by Tom Foremski on August 28, 2006 9:00 PM | Permalink | Comments (0) | TrackBacks (0)

Congrats to Good Morning Silicon Valley...GUBA turns to cash in vid hosting wars...Danny Sullivan shocks SEO community...Office 2.0 is coming mid-October

Congrats to John Paczkowski from the San Jose Mercury's excellent Good Morning Silicon Valley for a finalist nomination in the 7th Online Journalism Awards from the Online News Association (ONA) and the USC Annenberg School for Communication.

Online Commentary (Small)
CJR Daily
“Get on the Bus,” Scott Elliot
“Good Morning Silicon Valley,” John Paczkowski
SeeingBlack.com

I was wondering why it was in the "small" category since it is part of San Jose Mercury, a very large news organization.

It is interesting that no journalist bloggers, independent of mainstream media organizations, were chosen by the ONA judges. Is this the opinion of ONA that other online news sites aren't online news sites because they are published by small/self publishers?

During a time when independent journalists bloggers such as Josh Wolf are standing up and going to jail to defend the rights of our commonly accepted journalistic practices, this sends the wrong message IMHO. Why not nominate Josh Wolf as a special show of recognition and support?

Link to ONA News: 2006 Online Journalism Awards - Finalists

GUBA offers cash to vid recruiters . . .

The battle of the video upload sites begins to get a little bit more expensive as Guba tries to rise above the white noise and offers money to users that recruit other users.

Videos embedded in web pages and blogs allow people to click through to GUBA for a free account and the publisher gets paid 25 cents. There is no limit to the number of user-referrals a person can get paid for. To manage this transaction, GUBA will provide a cookie on the PC of each referred user. If the referred user decides to sign-up for a free GUBA account within 30 days of clicking on the users' link, that user will be credited for the sign-up.

Link to details on GUBA

Danny Sullivan's sudden departure . . .

Danny Sullivan, a towering figure in the search engine community has left his regular gig as an analyst at SearchEngineWatch, and the SearchEngineWatch Strategies conference series. He said that he was unable to reach an agreement on a new contract with the owners.

Everyone seems to be in shock and awe by the news. But people are down right supportive of Danny and his reasoning. Everyone was simply so accustomed to Danny always being there, always being with SEW, the baby he built up. Most are wishing Danny luck. Many are uncertain what the future brings to the search conference life. People are both excited for Danny but sad that SEW won't continue it's legacy. Some are just angry and mad that this can happen.

From Search Engine Roundtable.

I think it is very clear that he can set up under his own media brand in a New York minute. And I'd be happy to provide him with a regular slot on SVW should he need it.

He is already a big media brand in his own right and that was achieved through producing insightful analysis consistently. There aren't that many people that can do that day-in and day-out. I wouldn't worry about Danny Sullivan, he'll land on his feet.

Link to Reaction from the Search Community on Danny Sullivan's Departure

Office 2.0 is coming in mid-October . . .

There is lots of speculation about GOOG putting together an online suite of business apps to rival MSFT's Office. But we don't need to wait for Google to mashup its small collection of online apps because others are racing there anyway.

You'll be able to see some of them at the up coming Office 2.0 Conference October 11 to 12, in San Francisco at the St. Regis. It looks very promising from what I've seen so far. It will be officially announced next week and it has a stellar speaker list, with many people that I know and respect. I'll be attending and I'm hoping to get a special rate for SVW readers--so check back here in a few days.

Link to Office 2.0 2006 Conference - Conference

Posted by Tom Foremski on August 30, 2006 1:00 AM | Permalink | Comments (0) | TrackBacks (0)

Looking for meaning in GOOG's Eric Schmidt joining AAPL board - nothing much here...

By Richard Koman for SiliconValleyWatcher

The fun game yesterday was speculating on the meaning of Google CEO Eric Schmidt's joining Apple's board. After all, Google and Apple are two great tastes that go great together.

First, corporate speak: Steve Jobs (from Apple press release): "Like Apple, Google is very focused on innovation and we think Eric’s insights and experience will be very valuable in helping to guide Apple in the years ahead.”

Om Malik looks forward to integration between Google's advertising network and Apple's iTunes juggernaut. "Even though Google is being overtly aggressive about online video market, it is trying to leverage its advertising network more than download sales. Is it too hard to imagine - watch the video on Google Video, and download it on iTunes store? Both parties win? iTunes being included as part of Google software pack, or part of Google Toolbar? Google driving music-related searchers to iTunes store?"

Any of these scenarios is possible, even likely, but none of them require a seat on the board.

My initial take - especially after having posted about speculation that Jobs may have stock options problems at Pixar - was that Apple needed someone of Schmidt's stature as a potential CEO successor to Jobs. If you care to revisit the 1980s, you will recall that Apple simply doesn't run on MBAs. Apple requires vision, obsession and near-insane devotion to execution at the top. And ValleyWag points out that Schmidt has experience dealing with demanding personalities. But somehow, none of this really holds much water either.

Enter John Dvorak with the kicker: Schmidt is the set-up pitcher for a Sun-Apple merger.

Schmidt would quietly be Sun's inside man on the negotiations although technically he's be a neutral party since he doesn't actually work for Sun.

The way Dvorak sees it, Sun's server genius, Andreas von Bechtolsheim, a good friend of Schmidt's, may actually be behind the move. He's put Sun back on the map with AMD-centric servers that are fast, cheap and reliable. But Sun no longer has the marketing muscle of the glorious old days. Sun would get Apple's ad budget and Apple would get ... serious servers.

But does Apple still seriously care about the server market? This Sun-Apple business has been bouncing around for 20 years but since Jobs' return, Apple has substantially moved from a desktop manufacturer to a consumer company. When you look at long-term movements and you look at Apple, do you see a Microsoft-style company that wants to be dominant in every area?

Or do you see a design-centric appliance company that builds consumer lifestyle devices running robust software all tied together with proprietary lock-in and e-commerce opportunities? I see the latter, and while such a company might be an excellent company for Sun's servers, I don't see that they need to be Sun.

Last word to John Battelle: "I don't know what it means.

Tom Foremski here: What to expect from Eric Schmidt, Google's CEO joining the board of Apple Computer? Not much.

It certainly doesn't mean that Mr Schmidt will help bring about a Sun Microsystems and Apple merger, as John Dvorak speculates on MarketWatch. And it doesn't signify an Apple-Google alliance against Microsoft as GigaOm and others, have speculated.

BTW, it would be very unethical to bring in a director onto the board to facilitate an M&A deal.

And as for an anti-MSFT alliance, that isn't the case either. Mr Schmidt has already been there, and got his head handed back to him when he was CEO at Novell. GOOG doesn't need to engage MSFT anyway, the market is taking care of MSFT.

And as for MSFT's bid for iPod glory with its Zune music player? Again, what would Mr Schmidt bring to Apple? Apple has nothing to worry about, Zune will initially be competing against MP3 players from loyal Microsoft music player partners, and iPod would need to slide a long way down the hill to meet the Zune challenge.

All this appointment means is nothing much. CEOs of large companies spend time on the boards of other large companies--that's all there is to this.

A more interesting question might be in examining Mr Schmidt's track record as a CEO at Novell, and at Google. Let me know if you'd like to join me in exploring this question for a future post... :-)

Posted by Richard Koman on August 30, 2006 10:38 PM | Permalink | Comments (0) | TrackBacks (0)

Having fun in the Valley ... TiVo losses ... Hiring continues ... Brocade trial

By Richard Koman for SiliconValleyWatcher

Having fun: USAToday says that Web 2.0 is giving Valley entrepreneurs a chance to start companies that are more about people than business. And they're loving it. Andy Halliday started OurStory, a sort of storytelling/scrapbooking site for families.

"I wanted to distill seminal life moments amid a proliferation of media, such as e-mail and digital cameras," says Halliday, 52, who had a long-running career in specialty retailing. "This is something that has heart to it."

And Bill Nguyen, former CEO of Seven Networks, has started LaLa, a CD sharing site. "The other start-ups had a level of (business) logic to them," he said. "This one has a fun, cool vibe," he says. "And I'd like to watch my kid grow up."

With the modest amount of money it takes to get a stand-up going, people are forgoing the hassle of investors.

Liberated from the constraints of investors and pursuing their personal pet projects, executives say they are having a ball. "My biggest regret is that I did not do this earlier," says Andrew Littlefield, a former BEA Systems executive who is founder and CEO of Doppelganger, a virtual lounge for teens.

TiVo lost $6.45 million, or 7 cents per share, compared with a loss of $892,000, or 1 cent per share, a year ago. Those numbers still look good to Wall Street, which expected the DVR maker to lose 14 cents per share. A big part of the loss must be attributed to legal costs, as TiVo pursued and won a patent infringement case against EchoStar. The plan now? Growth, CEO Tom Rogers said:

`We believe the best way to grow our company is to increase our distribution,'' Rogers said. ``Right now we're in a subscriber-building phase and the marketing expenditure that that brings with it.''

Ex-Brocade execs Greg Reyes and Stephanie Jensen yesterday pled not guilty to charges that they illegally backdated stock options without proper accounting. (See SVW stock option coverage) The federal district judge set the trial for next summer and ordered prosecutors to turn over its evidence to the execs' defense team.

Economic bright spot: Silicon Valley is still upbeat about the economy compared to the rest of the Bay Area, the quarterly Bay Area Council survey finds. In Santa Clara, 38 percent of execs said they planned hiring increases, while 13 percent said they planned cutbacks. That hiring number's down from 42 percent last quarter.

Posted by Richard Koman on August 31, 2006 8:20 AM | Permalink | Comments (0) | TrackBacks (0)

Talk and drive without headset, get a fine

By Richard Koman for SiliconValleyWatcher

Here's a story that seems important to Silicon Valley: the Assembly is about to pass a bill making it illegal to drive and talk on a cellphone without a headset.

The legislation by Sen. Joe Simitian, D-Palo Alto, seeks to impose a fine of $20 for a first offense and $50 for subsequent offenses. However, the infraction would not result in adding a point to motorists' driving records.
Data collected by the California Highway Patrol in 2004 show that 818 of the collisions involving distracted drivers were related to using cell phones in the drivers' hands while only 30 were hands-free.

But does anyone in Silicon Valley talk without a headset? Forget about driving, no one even walks without a Borg implant device in their heads, do they? This is strictly aimed at amateurs.

The governor seems unlikely to sign it anyway. He said:

[Schwarzenegger] said that he wasn't sure if legislation was needed to solve the problem. The governor's office said Tuesday that he has not yet taken a position on Simitian's bill.

Posted by Richard Koman on August 31, 2006 12:03 PM | Permalink | Comments (0) | TrackBacks (0)

Private surfing with Browzar

The BBC reports on Browzar, a privacy browser that operates as a shell on top of Internet Explorer. Unlike IE, Firefox, Safari or most any other browser, Browzar doesn't save surfing history, cache visited pages, or cookies beyond the browsing session.

We've had downloads from over 200 countries," said Mr Ajaz Ahmed, founder of internet service provider Freeserve and the man behind Browzar. "All sorts of people are using it: teenagers, mums and grandparents. Many don't realise that their browser doesn't offer them privacy and they learn the hard way."

None of this is rocket science - all browsers let you disable all of these settings in a preferences dialog. Yet, few people do it. So maybe a new browser is what's needed. But because it sits on top of IE, Browzar still exposes users to all the same security flaws that the underlying Microsoft browser faces.

- Richard Koman

Posted by Richard Koman on September 1, 2006 10:43 AM | Permalink | Comments (3) | TrackBacks (0)

Intel set to cut 10,000 jobs

Intel (an SVW sponsor) is preparing to cut as many as 10,000 jobs, News.com is reporting.

The job cut is likely to weigh particularly heavily on marketing staff. Intel studies comparing its own staffing levels to competitors' concluded that the ratio of marketing personnel to salespeople was too large, the sources said.

The cuts are part of a huge internal review embarked on last April. Intel apparently concluded that its marketing staff was bloated compared to other companies'. The review has already resulted in the sell-off of Intel's telecom and XScale chip businesses, the layoff of 1,000 managers and the reshuffling of top management.

By Richard Koman - September 1, 2006 | Permalink | Comment on this post | Intel [INTC]
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Posted by Richard Koman on September 1, 2006 10:48 AM | Permalink | Comments (0) | TrackBacks (0)

Browzar is adware scam

By Richard Koman for SiliconValleyWatcher

On Friday I wrote up a story from the BBC on Browzar - an IE add-on that would disable all the personal information browsers typically save to your hard drive. Over the weekend, bloggers pulled the curtain down on the developers, who turn out to be adware scum who have hit on the latest way to get people to download their spyware: call it a privacy product.

Web3.0log reports:

After starting, Browzar shows its’ homepage, and these settings cannot be changed. Homepage offers to “Search the Web…”, but gives weird results from weird SE. I input “del.icio.us” and got ... [r]eally odd results, “Delicious at Amazon.co.uk“, “Find Delicious on eBay“… Attention to status bar!!! You’ll see links to… www6.overture.com. Overture is well-known PayPerClick-SE! It’s no wonder that search field on browser toolbar operates via Overture too.

A blog by McGill engineering student Wadih concludes: "A 45 minutes analysis showed that Browzar™ does not securely destroy the history, cookies, nor other kind of medias downloaded with it. Indeed, those files are fully recoverable as I will show in this blog entry. Browzar™ offers a false sense of privacy and security, and should only be used to hide traces from unknowledgeable people."

The BBC has Browzar's denials.

Posted by Richard Koman on September 5, 2006 8:50 AM | Permalink | Comments (1) | TrackBacks (0)

Crimes in high places? HP's internal investigation possibly broke law, as Dunn sought out leaker, leading to Perkins' resignation and Keyworth's ouster

By Richard Koman for SiliconValleyWatcher

Leaks from HP's board of directors so angered HP Chairwoman Patricia Dunn that she initiated a secret investigation into which directors were responsible for the leak - over the objections of HP director Tom Perkins (of Kleiner Perkins fame), News.com reports.

Perkins told Dunn not to launch an investigation but just to ask the directors if they were responsible for the leak. But, write News.com reporters Dawn Kawamoto and Tom Krazit, Perkins was "stunned" to learn that Dunn proceeded with the investigation anyway and has resigned in protest.

And the Wall Street Journal reported yesterday that the investigation has identified George Keyworth, a 20-year HP veteran, as the source of the leak. Keyworth was asked to resign at a May 18 meeting and refused. Now HP says they will not re-nominate him.

And in even more turmoil, News.com reports that California's attorney general and federal investigators suspect HP of obtaining information on directors' telephone calls by fraud and deception. California law prohibits anyone from making statements known to be "untrue or misleading," with violations punishable by six months in prison and fines of $2,500.

HP is due to file documents with the SEC as early as today providing more details on Perkins' resignation, and Perkins is requesting that HP be more forthcoming about the reasons.

Perkins, over the last several months, had expressed concern to HP over its alleged actions in securing telephone logs of his private residence and of his long-distance calls, sources said. Perkins requested information from AT&T on whether his local and long-distance accounts had been accessed and was informed that, indeed, information had been obtained in January and in early February, according to sources.

Newsweek tells the story with more panache:

On May 18, at HP headquarters in Palo Alto, Calif., Dunn sprung her bombshell on the board: she had found the leaker. According to Tom Perkins, an HP director who was present, Dunn laid out the surveillance scheme and pointed out the offending director, who acknowledged being the CNET leaker. That director, whose identity has not yet been publicly disclosed, apologized. But the director then said to fellow directors, “I would have told you all about this. Why didn’t you just ask?” That director was then asked to leave the boardroom, and did so, according to Perkins.
Close to 90 minutes of heated debate followed, but Perkins, the Silicon Valley venture capitalist, says he was the only director who rose to take Dunn on directly. Perkins says he was enraged at the surveillance, which he called illegal, unethical and a misplaced corporate priority on Dunn’s part. In an interview with NEWSWEEK, Perkins says he was particularly annoyed since he chaired the HP board’s Nominating and Governance Committee and had not been informed by Dunn of the surveillance, even though, he says, she had told him for months that she was attempting to discover the source of the leak.

According to that story, HP has so far refused to provide to the SEC the reasons for Perkins' departure - despite legal requirements to do so. HP has so far relied on technicalities - that Perkins didn't give his reasons for resigning - that seem far-fetched.

Valley watchers will be checking out HP's 8-K filing on Perkins carefully today. But now that the story is out, it's pretty clear that Keyworth and Perkins aren't the only ones out at HP. Dunn's days are clearly numbered.

Posted by Richard Koman on September 6, 2006 12:01 AM | Permalink | Comments (0) | TrackBacks (0)

HP admits pretexting, CA subpoenas, SEC awaits explanations

By Richard Koman for SiliconValleyWatcher

Earlier this week it came out that HP Director Thomas J. Perkins had resigned over an internal leak investigation organized by Chairwoman Patricia Dunn and conducted by an outside investigator. In its SEC filing yesterday, HP confirmed all of the developments that had been reported in the press:

Perkins resigned over the investigation.
Director George Keyworth was fingered as the leaker and was asked to resign, which he refused to do.
Keyworth will not be renominated to the Board.
The investigation involved pretexting, in which investigators lied to phone companies about their identity in order to get access to directors' records, including Perkins'.
The California Attorney General is investigating the legality of the investigation.
The SEC is inquiring into why HP originally reported that Perkins did not give a reason for his resignation.

SEC inquiry. By law, a company must supply the SEC with information whenever there is a change in its Board. On May 22, HP reported Perkins' resignation but didn't provide any reason for it, saying he hadn't given a reason. But in today's filing, the company tells a different story:

The Chairman of the Board, and ultimately an internal group within HP, working with a licensed outside firm specializing in investigations, conducted investigations into possible sources of the leaks of confidential information at HP. Those investigations resulted in a finding that Dr. George A. Keyworth II, one of HP’s directors, did, in fact, disclose Board deliberations and other confidential information obtained during Board meetings to the media without authorization. At a Board meeting on May 18, 2006, after Dr. Keyworth acknowledged that he had leaked confidential information, the Board, after deliberation, asked Dr. Keyworth to resign his position as a director, which he declined to do. It is at that meeting that Mr. Perkins resigned from the Board after expressing personal frustration with the Chairman of the Board relating to the handling of the matter with the Board. He stated that he objected to the matter being brought before the full Board and that he believed the Chairman had agreed that he and she would handle the matter privately. The Chairman disputed Mr. Perkins’ assertion, explaining that she was complying with advice from outside counsel on the appropriate handling of the matter. At the time, Mr. Perkins confirmed he did not have any disagreement with HP on any matter relating to HP’s operations, policies or practices.

That sure sounds like it was pretty clear what the reason for the resignation was and the original statement that no reason was given is disingenuous at best. The SEC is looking for an answer to this question.

HP also has received a comment letter from the staff of the Securities and Exchange Commission’s Division of Corporation Finance with respect to its May 22 Form 8-K regarding Mr. Perkins’ resignation. HP intends to respond to the SEC staff that it believes its disclosures in the May 22 Form 8-K with respect to Mr. Perkins’ resignation were accurate and complete at the time of filing and were based upon Mr. Perkins’ actions and representations prior to such time concerning the reasons for his resignation.

Was pretexting a crime? On June 19, Perkins asked for information about how the investigation was conducted and asserted that investigators' phone and email inquiries were “probable unlawful conduct, improper board practices, breakdowns in corporate governance," according to the New York Times. Yesterday, HP confirmed that investigators used pretexting but that the company had been assured by the investigator that nothing illegal transpired.

HP informed Mr. Perkins that no recording or eavesdropping had occurred, but that some form of “pretexting” for phone record information, a technique used by investigators to obtain information by disguising their identity, had been used. Mr. Perkins, although no longer a director, then requested that HP conduct an inquiry into the propriety of the techniques used to conduct the investigation. ...
After its review, the [Nominating and Governance] Committee determined that the third party retained by HP’s outside consulting firm had in some cases employed pretexting. The Committee was then advised by the Committee’s outside counsel that the use of pretexting at the time of the investigation was not generally unlawful (except with respect to financial institutions), but such counsel could not confirm that the techniques employed by the outside consulting firm and the party retained by that firm complied in all respects with applicable law.

The California Attorney General's office officially launched an investigation into the matter, issuing subpoenas, the Mercury News reports.

`I have no settled view as to whether or not the chairwoman's acts were illegal, but I do think they were colossally stupid,'' Attorney General Bill Lockyer told the Mercury News in an interview. ``We'll have to wait until the investigation concludes to determine whether they were felony stupid or not.''

Perkins' lawyer thinks they were:

``The facts are not totally in,'' Viet Dinh said. ``But one thing that is clear is pretexting to get personal records is illegal under federal law and California law. Any lawyer who thinks that lying to get private telephone records is legal needs to evaluate his bar license.''

That's a shot across the bow at Larry Sonsini, reports the Times.

[The pretexting] was revealed in an e-mail response when Mr. Perkins directly asked Larry W. Sonsini, the chairman of Wilson Sonsini, about the investigative methods.
The Wilson Sonsini investigation concluded that the use of pretexting “was not generally unlawful.” But the law firm could not say whether the consulting firm that Hewlett-Packard hired, or the subcontractors it used, “complied in all respects with applicable law.”

And says the time, the issue has caused a rift between Perkins and Sonsini:

A Wilson Sonsini lawyer, Boris Feldman, accused Mr. Perkins of discussing internal Hewlett-Packard deliberations with others last month. The lawyer went on to demand that he name those he spoke to and what documents he gave them.
Mr. Perkins’s response was just as rough. Mr. Dinh, who had served from 2001 to 2003 as assistant United States attorney general for legal policy, helping to draft the Patriot Act, accused the law firm of conflicts of interest. He accused the company of “sanitizing” the minutes of the board meeting in which Mr. Perkins resigned. He told the company that Mr. Perkins was a victim of possible fraud, identity theft and misappropriation of personal records.
“We have good reason to believe that H.P. and/or its agents were responsible for these activities,” he said in a letter to the company.

Posted by Richard Koman on September 7, 2006 10:09 AM | Permalink | Comments (0) | TrackBacks (0)

Is HP chairwoman Dunn done for? The board meets to decide...

By Richard Koman for SiliconValleyWatcher

UPDATE: HP said U.S. federal prosecuters have asked it for information about its investigation into leaked boardroom discussions.

Saturday, Tom Perkins called on Patricia Dunn to resign as HP's chairman, saying in a statement:

"I acted not from any ill will toward Ms. Dunn but to protect the best interests of HP, I think the past months and days have shown that those interests are best served if Ms. Dunn would resign from the board."

And he's not the only one. The business press is now lining up on Perkins' side.

Fortune: :

Even if there might be some argument that Dunn could reasonably have thought the company was acting legally in obtaining the records, she behaved improperly in not insisting that she know for sure of their origin.
HP is a leading vendor of personal computers to consumers in the United States, and the second largest producer of all PCs worldwide. It cannot afford to suffer even for one more day the perception that it does not put the highest priority on protecting personal information. That is the perception one cannot avoid having at this moment.

There's plenty more like that.

The board met Sunday and is meeting today, but no surprise, there have been no leaks so far. Dunn suggested last week that no resignation is in the cards, telling the press that she'll resign if asked but doesn't expect to be so asked. The sands are shifting, though, as the opinion pieces indicate. And the Times reports: "A person with knowledge of some portions of yesterday’s board meeting said that there was a strong chance that Ms. Dunn — who recused herself from some of yesterday’s discussions — would have to step down."

Dunn is taking a page from President Bush's playbook, saying that "pretexting is wrong" and that she was "appalled" to learn that the independent contractor used pretexting. It smacks of Bush's disavowal of the Swift Boat ads even as he benefited from them or Claude Rains' being "shocked, shocked!" to discover gambling at Rick's Cafe.

The version doesn't comport with Perkins' view of the affair. He wrote an email on June 20 to Larry Sonsini, the Wall Street Journal revealed, saying:

"Larry, the investigation was a Pattie Dunn program, 100 percent conceived of and managed by her, and unknown to the board, except perhaps in the most vague and imprecise terms, with the possible exception of Mark [Hurd], who she may have briefed."

And Dunn had an apology for the reporters who were spied on too: ""The information that has recently come to light about the involvement of reporters and the way they're involved in this investigation is highly regrettable, and I want to apologize individually on behalf of this board," she told News.com. "Nobody had that in mind when this investigation was undertaken."

The complete list of journalists now includes News.com's Dawn Kawamoto, Tom Krazit and Stephen Shankland, The Wall Street Journal's Pui-Wing Tam and George Anders, The New York Times' John Markoff, and BusinessWeek's Peter Burrows, Ben Elgin, and Roger Crockett. While it's disquieting to have thugs snooping through your phone records, that's gotta be some sort of badge of honor for hacks.

By all accounts Dunn previously had a reputation for high ethics. What happened? Perhaps it's just a sign of the fear-mongering, leak-plugging, law-bending times set by Washington. "This is a sign of the times,'' outplacement consultant John Challenger told the Chronicle's Tom Abate. "Think of how Bush has been handling the leaks in his administration."

Silicon Valley Watcher - reporting on the business of technology and media

Former Financial Times journalist Tom Foremski and team reporting on the business of technology and media . Silicon Valley is becoming a Tech Media Valley.

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