Nokia drops targets and shares slump to 13-year low

By Ritsuko Ando

HELSINKI (Reuters) - Mobile phone maker Nokia Oyj abandoned hope of meeting key targets just weeks after setting them, raising questions over whether its new boss can deliver on the turnaround he promised in February.

Its shares tumbled 18 percent to their lowest in 13 years, wiping some 3.8 billion euros ($5.5 billion) off its market value as investors worried the company, once the leading force in its industry, was losing so much market share it may never regain its footing.

Nokia has been losing ground in the smartphone market to Apple Inc's iPhone and Google Inc's Android devices, and at the lower end, to more nimble Asian rivals.

The company is switching to Microsoft Corp's software from its own Symbian platform as part of an overhaul of its phone business set out three months ago by new Chief Executive Stephen Elop.

But it continues to suffer from mounting competition and warned on Tuesday it expects net sales from its devices and services business in the second quarter to be "substantially below" its previous forecast, set in April, of between 6.1 billion euros ($8.7 billion) and 6.6 billion.

Elop, brought in last year to help revive Finland's flagship technology company, blamed both weak sales and price cuts, noting competition was particularly tough in Europe.

"Android is gaining strength. Apple is Apple, of course," he told analysts on a conference call. He also said management issues had also hurt business in China, where Nokia faces challenges from the likes of ZTE Corp.

"Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011," the company said, though it would still provide quarterly updates.

Nokia forecast its non-IFRS operating margin for devices and services to be around break-even in the second quarter, rather than previously expected range of 6 percent to 9 percent.

STARTING TO LOOK DANGEROUS

The new outlook implies a loss is likely for third quarter, analysts said. They also said the warning showed Nokia's market position worsening much faster than expected, with lower-priced Asian rivals grabbing a bigger chunk of markets such as China.

"What does strike us as quite surprising is the level to which the markets have dropped, we're talking about break even now, which is quite a slide," said Lee Simpson, an analyst at Jefferies & Co.

"I think this level of shareholder destruction is now starting to look dangerous. What can these guys do to reverse this?"

Nokia shares closed at 4.75 euros, having briefly fallen as low as 4.716 euros, their lowest in more than 13 years and compared with a peak around 65 euros set in 2000.

"Given the internal turmoil that will be generated by this news, it is increasingly difficult to see that Nokia can leapfrog one handset generation and be on par with the competition in early 2012," said WestLB analyst Thomas Langer.

In February, Elop had compared Nokia with a burning platform in a widely leaked memo when he unveiled a shift in strategy in smartphones by choosing Microsoft's unproven software over its own.

Elop said he had greater confidence in shipping the first Windows-based Nokia phones in the fourth quarter. Some analysts and investors, however, are worried a comeback could be difficult.

"The market share has kept sliding and that's never a good sign," said Hakim Kriout, portfolio manager at Grigsby & Associates in New York, who dumped Nokia shares earlier this year. "They were in a leadership position for a long time and once you lose that position, chances are you'll never regain it."

However, Kriout also said Nokia's business may not be as bad as the latest sell-off suggests. "Traders are looking for a bottom. If you look at the shares now, and if you think it goes back to 8, then that's a pretty good return. It's really about when we're going to see things stabilize."

Tuesday's warning comes a month after Nokia said it would cut 7,000 jobs and outsource its Symbian software development unit to cut costs.

Elop is the first non-Finn to run the company, which evolved from a rubber boots-to-TVs conglomerate into a global mobile phone maker in the 1990s.

(Additional reporting by Jussi Rosendahl in Helsinki; Niklas Pollard and Patrick Lannin in Stockholm; Editing by Andrew Callus and David Holmes)
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California may review AT&T/T-Mobile USA deal

NEW YORK (Reuters) - California regulators may open a formal examination of AT&T Inc's proposed $39 billion purchase of T-Mobile USA, a move that could delay or add conditions to approval of the deal.

If successful, the deal would create the largest U.S. mobile phone service.

To complete the deal, which many consumers and rivals including Sprint Nextel are opposing, AT&T needs approval from the U.S. Department of Justice and the U.S. Federal Communications Commission, the telecommunications regulator. State regulators can block a merger within their state.

The California Public Utilities Commission told its staff, in a meeting on Thursday, to open a proceeding to gather information about the merger for the state regulator to consider at its next voting meeting on June 9.

The commission said it wants information about the merger proposal "in light of relevant state law and public policies."

State regulators can block a merger but more typically, they tend to impose conditions for approval that are specific to the needs of that state, experts said.

Because California is such a large state, a rejection there "would sabotage the deal to a large extent," according to Bert Foer, head of the American Antitrust Institute but he added that it was more typical for states to negotiate with the federal regulators.

State reviews could also affect the timing of a deal as a merger would not close until all the reviews were competed, according Stifel Nicolaus analyst Rebecca Arbogast.

AT&T has notified California, Arizona, Hawaii, West Virginia and Louisiana about the deal. Louisiana has already said it would investigate. Sprint had asked West Virginia, California and Louisiana to review the deal.

Sprint and Leap Wireless say the deal would make the U.S. wireless industry less competitive while consumers have told the FCC that they are worried the deal will result in higher prices.

AT&T has argued that the acquisition of T-Mobile USA, a unit of Deutsche Telekom, would help it to provide a better service by allowing it to expand its network in states like California more quickly than it could have otherwise.

AT&T notified the California commission about the proposed deal on May 3 and the deal would have been deemed approved if the regulator had taken no action 30 days later.

Lane Kasselman, a spokesman for AT&T said the company

is "confident in the merits of this deal and that regulatory approvals will be obtained" after the reviews.

The top executives from AT&T, T-Mobile USA and Deutsche Telekom have defended the deal at Senate and House hearings where Republicans and Democrats expressed skepticism about the benefits of the deal to consumers.

(Reporting by Sinead Carew in New York, Diane Bartz in Washington and Poormina Gupta in San Francisco; editing by Derek Caney)
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Lockheed network suffers major disruption

By Andrea Shalal-Esa and Jim Finkle

WASHINGTON/BOSTON (Reuters) - Lockheed Martin Corp, the Pentagon's No. 1 supplier, is experiencing a major disruption to its computer systems that could be related to a problem with network security, two sources familiar with the issue said on Thursday.

Lockheed, the biggest provider of information technology to the U.S. government, is grappling with "major internal computer network problems," said one of the sources who was not authorized to publicly discuss the matter.

A second source, who also asked not to be identified, said the issue was "affecting a lot of people" at Lockheed, maker of the stealthy F-22 and F-35 fighter planes and other critical weapons systems.

Lockheed, which employs 133,000 people worldwide and had $45.8 billion in revenues last year, said it does not discuss specific threats or responses as a matter of principle, but regularly took actions to counter threats and ensure security.

"We have policies and procedures in place to mitigate the cyber threats to our business, and we remain confident in the integrity of our robust, multilayered information systems security," said spokesman Jeffery Adams.

Big corporations -- especially government contractors -- keep matters of internal security secret and rarely publicly disclose problems in securing their networks.

Yet companies do occasionally reveal such attacks, sometimes forced by financial disclosure laws or by the large impact on customers.

Sony Corp, for example, last month disclosed that hackers had accessed personal data of some 100 million customers and was forced to shut down its PlayStation Network online gaming system.

The sources said Lockheed employees were still able to use mobile devices to access their company email accounts.

The slowdown began on Sunday after security experts for the company detected an intrusion to the network, according to technology blogger Robert Cringely. He said it involved the use of SecurID tokens that employees use to access Lockheed's internal network from outside its firewall,

A spokesman for EMC Corp, whose RSA division makes the tokens, declined to comment, saying it is company policy to never discuss security issues affecting specific customers.

EMC disclosed in March that hackers had broken into its network and stolen some information related to its SecurIDs. It said that the information could potentially be used to reduce the effectiveness of those devices in securing a customer's network.

Steve Winterfeld, cyber technical lead at TASC, an advanced systems company spun off from Northrop Grumman Corp, said RSA had not provided any details of how hackers broke into its network, which meant the hackers could have used the same method to attack other corporations.

He said TASC and other companies were extremely concerned about the breach, which meant that the SecurID tokens could no longer be viewed as completely secure.

"You have no idea how many people are freaked out right now," Winterfeld told Reuters. "TASC is no longer treating the RSA device as if it were as secure as it was beforehand."

MONITORING CENTER

Loren Thompson, chief operating officer of the Lexington Institute, and a consultant to Lockheed, said the company monitored every node on its vast global computer network from a large operations center in a Maryland suburb near Washington, D.C.

"If it sees signs that the network is being compromised by outsiders it will shut down whole sectors of the network to protect information," Thompson said.

He said Lockheed had advanced networking monitoring tools that gave it a "much better understanding of their systems' status than most other organizations, including the Department of Defense."

He said the incident underscored massive challenges faced by corporate and government computer networks in "an age where everybody has access to ubiquitous digital communications."

Lockheed has been a frequent target of cyber attacks by individual hackers and foreign governments, said one industry executive, who was not authorized to speak publicly. "The Chinese had been after them forever," this executive said.

Winterfeld noted that both China and Russia had developed stealthy fighter jets sooner than expected, raising questions about whether those countries had penetrated U.S. networks involved with development of U.S. stealth technology.

Lockheed teamed up this month with Carnegie Mellon University to open a new cyber laboratory in Pittsburgh.

At the time, Rick Ambrose, president of Lockheed's information systems division, said potential cyber attackers were "getting smarter, faster, and more sophisticated every day."

The company has been working to help accelerate response times, protect smartphones, and pinpoint potential vulnerabilities in government and corporate networks.

(Reporting by Jim Finkle and Andrea Shalal-Esa; Editing by Tim Dobbyn)
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Apple fights fake anti-virus software vendors

BOSTON (Reuters) - Apple Inc is fighting what security experts say may be the most pernicious types of computer virus to ever target its line of Mac computers.

The company has issued a security advisory warning to customers about a recent scam that infects Macs with malicious software that wrongly tells them their computer is infected with a virus. The ultimate goal is to get credit card numbers and other valuable personal information.

It is one of the first major campaigns that cyber crooks have launched against Mac users. To date, criminals have focused on writing malicious software for machines running Microsoft Corp's Windows operating system, which inhabits more than nine of every 10 personal computers.

But as Macs have grown in number, they have become more attractive targets.

The fake anti-virus malware is downloaded when people click on links from tainted search engine results for popular queries, according to anti-virus software maker McAfee Inc. It also spreads when users click on links to malicious sites that might be included in emails, Tweets or Facebook messages.

Apple said it will issue an update for its Mac operating system "in the coming days" that will automatically find and remove malicious fake anti-virus software. It will also warn Mac users when they download such programs.

In the meantime, Apple has issued advice on how users can clean up machines that have been infected by the malicious software, which goes by names including MacDefender, MacProtector and MacSecurity. (http://support.apple.com/kb/HT4650)

(Reporting by Jim Finkle; Editing by Richard Chang)
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Exclusive: SEC wasted $1 million on data storage, watchdog says

By Sarah N. Lynch

WASHINGTON (Reuters) -The Securities and Exchange Commission wasted $1 million on virtual data storage it bought in 2008, the agency's internal watchdog said, part of a series of investigations into the agency's procurement practices.

SEC Inspector General David Kotz is also expected to unveil soon the findings of a probe into the SEC's leasing process, after the agency was forced to renege on a plan to rent 900,000 square feet of office space because it failed to secure additional funding from Congress.

The findings could provide ammunition to some Republican lawmakers seeking to deny extra money for the SEC in an effort to starve regulators of funding to implement the Dodd-Frank financial overhaul law.

The SEC has asked Congress to boost its budget by $222 million, or 16 percent, to $1.407 billion for fiscal 2012 that begins Oct 1.

In the December report, Kotz investigated the SEC's acquisition of data storage technology, which included items from Apple Inc. and virtual storage provided by a firm called Cloverleaf Communications, later acquired in 2010 by Dot Hill Systems.

The report, dated December 14, 2010, was obtained by Reuters through a Freedom of Information Act request.

Kotz uncovered numerous problems, from the equipment itself to the procurement process, which occurred in the summer of 2008, before Mary Schapiro became chairman of the SEC.

According to the investigation, an Apple salesman convinced the agency that Cloverleaf could provide a cheaper solution to the agency's data storage and backup woes.

Although there were other companies that offered similar products, Kotz said the SEC violated federal contracting procedures by securing a no-bid contract with Cloverleaf, a company with which the SEC had no experience. Kotz said the contract actually proved "to be more expensive than other, better-known and less risky alternatives."

He also found the SEC improperly shared budget information with Apple and went ahead with purchases before getting proper approval and before performing reviews.

In a statement, SEC spokesman John Nester said the agency agrees with Kotz's findings and is "taking steps to improve our policies and controls over purchases of information technology solutions, including pre-purchase review by management's technology and business oversight committees."

Representatives of Dot Hill and Apple did not respond to requests for comment.

The SEC was later beset with problems when it tried to actually use the equipment, Kotz said, adding that "bugs" in the installation were not worked out and the project "quickly went downhill from there."

Later, when some SEC staff sought to bring the problems to the attention of a supervisor, staff told Kotz the supervisor told them "this information doesn't leave this room" and then got up and left the room.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)
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Analysis: Sony's breach a hiccup to online game phenomenon

By Liana B. Baker

NEW YORK (Reuters) - When service was finally restored to Sony Corp's PlayStation Network earlier this month, millions of customers rushed back to it, impatient to get back to battling friends in sports or shooter games.

It was hardly the response many had expected after a major security breach, one that shut down Sony's games network for nearly a month in the United States and exposed the personal information of more than 100 million customers.

While the Sony incident has made headlines and produced lawsuits, it has also made clear that security worries are not about to derail the up-and-coming online gaming industry.

"Some gamers are more concerned about the lack of online access than a personal information breach," said Ted Pollak, portfolio manager of the video game industry focused Electronic Entertainment Fund.

Pollak said that for many online gamers their connection to the multiplayer experience, playing games with friends over the Internet, is a significant part of their life and having it taken away is no small matter. It is analogous to a sports fan not being able to watch sports on television.

To tap into that passion, video game publishers are pouring millions of dollars into their online offerings. Some virtual worlds, such as World of Warcraft, are already teeming with 12 million players.

"Online gaming is still in the hyper-growth phase," said Sterne Agee analyst Arvind Bhatia. "Even if Sony's breach makes online gaming suffer a bit from this, we won't notice it because growth rates are so strong."

Sony estimated on Monday that the outage caused by hackers who broke into the system and stole personal information from users will cost the company $170 million in profit this year. The network is still offline in some markets.

But Sony's financial pain is small compared to what the video game publishers are raking in from online games. Activision Blizzard said its revenue from digital channels reached $428 million last quarter while Electronic Arts reported its digital revenue was $211 million last quarter and should increase by 20 percent next year.

UNFAZED BY HACKERS

Sony is far from the only games service to deal with security problems.

In 2007, Microsoft Xbox Live Service faced criticism for being a hotbed for phishing attacks, which occur when users fraudulently pose as players' friends to extract sensitive information from them. Microsoft now lists guidelines for its users to follow, including common sense tips such as not sharing passwords and keeping physical addresses private. (Read them here: http://bit.ly/jHCLfG )

More recently, Square Enix, which makes popular online game "Final Fantasy," said in May that websites for one of its units, Eidos Montreal, had been attacked by hackers. More than 25,000 email addresses were stolen along with 350 resumes of job applicants.

Online gaming has taken measures to protect customers -- particularly their credit card information. Microsoft and Sony both sell prepaid cards for their online networks at stores such as GameStop Corp.

The cards were introduced so parents could let their children play games online without having them put their credit card information on the Internet. Today, they create a measure of protection for all users.

Nexon, a privately held company that specializes in online games, said it introduced prepaid cards in 2007, and saw a "gigantic lift" in sales.

"Our philosophy on payments is that we want you to pay the way that feels natural for you," said Min Kim, Nexon's vice president of marketing.

Kim said that people scared of fraud are more likely to turn to prepaid cards, which are sold in stores such as Target and Rite Aid.

"Sony's incident is unfortunate, but it's not going to stop people from going online," Kim said.

GameStop, the world's largest retailer for video game producers, still expects digital content to be one of its fastest-growing sales areas, company president Tony Bartel said in a recent interview.

While some gamers might think twice before heading online again, Sony's public struggles with security on its game network may have raised the profile of online gaming, he added.

Before the Sony breach, Bartel said many people had no idea there were 100 million people on Sony's game networks.

Sony's breach "raised awareness that there's a huge group of gamers out there and there's nothing but growth ahead." Bartel said.

(Editing by Paul Thomasch and Tim Dobbyn)
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Verizon eyes family data plans

By Sinead Carew

NEW YORK (Reuters) - Verizon Wireless expects to offer family plans for data services supporting multiple devices including smartphones and tablet computers at some point in the future, according to a top executive of parent company Verizon Communications. (VZ.N)

Verizon Wireless plans to kick off pricing changes this summer by eliminating smartphone plans that allow unlimited Web access for a flat fee. It will replace them with tiered pricing that forces heavy data users to pay more for mobile data.

After this change the company will look to soften the blow by offering more options such as family plans for data services, Chief Financial Officer Fran Shammo told the Reuters Global Technology Summit.

While families can share a bucket of minutes for phone calls today, each family member with a smartphone has to pay $30 per month each for data services. If they own a tablet computer they pay another separate data fee.

"We had individual minutes for individual users. Then we eventually got to what we call family share where everyone in the family shares the same minutes," Shammo said.

"I think it's safe to assume that at some point you are going to have mega-plans (for data) and people are going to share that mega-plan based on the number of devices within their family. That's just a logical progression," he said, but did not provide a time frame for such mega-plans.

HIGH-SPEED IPHONE?

Like its rival AT&T Inc (T.N), Verizon is limiting usage of data services to avoid putting a strain on its network or increasing network costs out of proportion with monthly fees.

But since they are also dependent on data services for revenue growth, operators are still figuring out how to cap usage in a way that makes data services affordable enough for consumers to use devices other than phones on their network.

In February Verizon ramped up its competitive efforts against AT&T by launching a version of the Apple Inc (AAPL.O) iPhone, which had previously been exclusive to AT&T.

While Verizon has sold fewer iPhones than some analysts expected, Shammo said he was happy with sales of the "six-month-old phone" that only works in some countries.

When the next iPhone model launches Verizon will be able to offer it at the same time as AT&T. Verizon's version will also work in as many countries as AT&T's iPhone, which has global coverage, Shammo said.

Some customers held off on buying the first Verizon iPhone because they were waiting for a model that supports Verizon's high-speed wireless service, which runs on a new technology called Long Term Evolution (LTE).

Shammo said that even if the next iPhone does not support LTE, Verizon will have enough high-speed alternatives to sell.

"I think it's a bigger issue for Apple than it is for us," he said. "Depending on where Apple plays, that's where we'll sell."

PREPAID "IMPORTANT"

For voice services Verizon focuses mainly on postpaid customers who pay monthly bills and commit to a long term contract. It is also experimenting with prepaid services, where customers pay in advance but do not commit to a contract as this is the one area in voice services that is growing.

Until now Verizon's prepaid services have been uncompetitive with more specialist rivals and have made the biggest in-roads in the market by renting network space to prepaid provider Tracfone, a unit of America Movil (AMXL.MX).

The company has yet to decide if it will expand nationwide with a $50 per month prepaid plan it is testing in Florida and elsewhere, according to Shammo. He said Verizon would do what it "needs to do" in prepaid.

"We've always said we're a postpaid company," he said. "That doesn't mean that prepaid is not important to us."

Expansion of the prepaid plan would put Verizon into direct competition with smaller rivals such as MetroPCS (PCS.N) and Leap Wireless (LEAP.O).

Verizon Wireless is currently the top U.S. mobile provider but it will be leapfrogged by AT&T next year if AT&T gains regulatory approval for its $39 billion plan to buy T-Mobile USA, a unit of Deutsche Telekom (DTEGn.DE).

Verizon, which recently bought business services firm Terremark, may add to this deal with the purchase of boutique software companies worth less than $100 million, Shammo told Reuters.

Verizon is the majority owner of Verizon Wireless, its venture with Vodafone Group Plc. (VOD.L).

(Reporting by Sinead Carew, editing by Matthew Lewis)
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Apple updates iMac line with new processors

NEW YORK (Reuters) - Apple Inc refreshed its lineup of iMac desktop computers with new Intel Corp processors that is says are up to 70 percent faster.

The new iMac line will also include new Thunderbolt ports that were introduced earlier this year in its MacBook Pro laptop line. Thunderbolt is an input/output technology that supports displays and devices.

Thunderbolt ports are similar to USB ports but about 20 times faster, according to Apple.

Apple said on Tuesday that the new iMac, which has quad-core Intel processors, is on sale online and its retail stores starting at $1,199.

(Reporting by Sinead Carew; editing by Gerald E. McCormick)
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