Hasta La Vista
Bugs flying into Windows OS

1. Bugzilla

Software bugs are swarming this spring.

Microsoft ( MSFT) stunned techies Tuesday by delaying the consumer rollout of its Windows Vista operating system. The postponement came just a week after Sony ( SNE) endured a costly delay of its own , on its Sony PlayStation3 game box.

Microsoft has long promised that Vista would "bring clarity to the world of personal computing." But the latest delay, to 2007 from the second half of 2006, only adds to the product's murky history.

Vista was once named Longhorn and was slated for a 2004 developer release, but Microsoft changed the name in an apparent bid to make the software more marketable. Meanwhile, Vista's huge complexity still has software engineers toiling over what Microsoft quaintly describes as quality issues.

"Product quality and a great out-of-box experience have been two of our key drivers for Windows Vista, and we are on track to deliver on both," says Jim Allchin, co-president for the Platforms & Services Division at Microsoft. "We strongly support Microsoft's decision to prioritize quality in determining the schedule for Windows Vista," adds Todd Bradley, executive vice president of the Personal Systems Group at Hewlett Packard ( HPQ).

The dark development at Vista came just hours after Microsoft rolled out its plan to capitalize on Sony's own quality questions. With PlayStation3's launch delayed till November, Redmond, Wash.-based Microsoft will at least double production of its Xbox 360 game console.

"Today we have turned a major corner," Microsoft vice president Peter Moore said. "With more consoles on their way to retail, 80 games available by June, and new content and experiences coming to Xbox Live all the time, there has never been a better time to own an Xbox 360."

Too bad he can't say the same of Windows Vista.

Dumb-o-Meter score: 91. The view is anything but clear on the new operating system.

To view Colin Barr's video take on Microsoft's entry in Five Dumbest this week, click here .

Verizon Shareholders Vexed
Show them the exec performance!

2. Gimme Shelter

Some investors are getting teed off at Verizon ( VZ).

This week, the New York telco filed 2005 executive-pay data with regulators. CEO Ivan Seidenberg took home more than $19 million in cash, stock and perks, up 13% from a year ago. His salary alone jumped 40% to $2.1 million.

Verizon says the big raise is richly deserved. "In 2005, Verizon continued to introduce innovations in wireless, broadband, data, video and long-distance services resulting in strong growth," the proxy filing says.

Yet for all those innovations, shareholders ended up deep in the rough again. Verizon shares shed nearly a quarter of their value last year, as Wall Street fretted over a costly fiber-optic buildout called Fios and inroads by rival AT&T ( T).

Yet despite those losses -- and the fact that Verizon's supposedly strong growth actually amounted to just 5% -- Seidenberg could end up taking home even more. The filing says he may get a performance stock payout as large as $22 million, "to the extent that synergy targets relating to the launch of Verizon Business, key legislative initiatives, Fios and broadband initiatives, and Wireless growth objectives are met or exceeded."

Enough, says Verizon shareholder C. William Jones. Jones, president of a Bell retiree group that has taken aim at Verizon before, says Verizon's board should rein in runaway pay by linking bonuses more closely to stock performance. He's sponsoring a proposal, over Verizon's objections, to raise the hurdles for stock awards.

Verizon claims it already links pay with performance by dangling something called performance stock units, or PSUs, before execs. Jones concedes Verizon has made progress but complains that execs still get huge checks even if Verizon's shares trail market or industry peers.

"The problem," Jones writes of the incentive-stock criteria, is "that the performance hurdle is what we believe golfers refer to as a 'gimme.'"

Now there's a term Seidenberg might be familiar with.

Dumb-o-Meter score: 88. Actually, Seidenberg placed 97th on Golf Digest's 2002 golfing CEO honor roll.

General Malaise
Wheels falling off for Wagoner

3. High Rollers

The numbers game keeps getting stranger at General Motors ( GM).

The struggling automaker had some rare good news this week in its ongoing game of Let's Make a Deal. GM reached a settlement Wednesday with its unions and big supplier Delphi ( DPHIQ) over a big employee buyout. The deal should help GM to pare its cost structure, and may finally empty out the so-called jobs bank in which union workers collect a check for reading the paper.

GM also succeeded in raising $9 billion Thursday through the sale of a majority stake in a commercial mortgage operation. That should help the company bolster its liquidity as GM tries to catch up with nimbler competitors like Toyota ( TM). GM continues to shop for a buyer for the majority of the GMAC car-and-house financing business.

But this being GM, the gains came right after another big black eye. The company widened its reported loss for 2005 by roughly $2 billion, after adjusting some previously reported charges. The accounting changes mean GM lost a staggering $10.6 billion last year.

The accounting debacle doesn't exactly fit in with CEO Rick Wagoner's Dec. 17 promise to The Wall Street Journal that the company would get off to "a nice start" in 2006. Bloomberg columnist Doron Levin writes this week that the latest problem with the books -- the Securities and Exchange Commission is already probing GM's accounting for pension obligations and other liabilities -- may have "fatally undermined" Wagoner's leadership.

On the other hand, look at the bright side. As Levin says, "The best defense for Wagoner might be that no one can fix GM, short of a bankruptcy judge."

Dumb-o-Meter score: 85. "Wagoner also must answer for his forecast that GM would be earning $10 a share by mid-decade," Levin adds. Amen.

4. Fairer Game

The big joint-implant companies are hip to a new growth market.

This week Zimmer ( ZMH), Stryker ( SYK), Biomet ( BMET) and Johnson & Johnson ( JNJ) faced off at the American Academy of Orthopedic Surgeons in Chicago. Grabbing headlines was the fiercely competitive industry's latest attempt to spur sales: knee replacements made especially for women.

Stryker reminds surgeons and patients of the virtues of its Triathlon Knee System. The Kalamazoo, Mich., company describes the Triathlon, which has been implanted in 30,000 patients, as the "first total knee replacement designed with women in mind."

But sales leader Zimmer has its own entry in this race. Its Gender Solutions Knee Femoral Implant is "the first knee replacement system designed specifically to address the unique needs of women patients," Zimmer says.

Obviously, both companies can't be first. But it's tough to beat Zimmer chief Ray Elliott when it comes to sheer promotional overkill.

The Gender Solutions Knee was "featured the new implant prominently in a pink booth" at the surgeons meeting in Chicago, Reuters points out. And if that's not enough, Elliott offers up this bon mot in a Thursday press release extolling the new knee's virtues: "Women are clearly not little men."

You've come a long way, Ray.

Dumb-o-Meter score: 82. Biomet is sitting this one out, but J&J's DePuy has hired actress Angela Lansbury for a campaign that will "focus on the social and emotional differences between the sexes," Reuters reports.

5. Kingmakers

Suddenly the grass is looking greener at Sovereign Bancorp ( SOV).

The acquisitive Philadelphia-based thrift settled an acrimonious feud this week with big shareholder Relational Investors. The agreement ends a long-running clash in which Relational, a San Diego hedge fund, repeatedly accused Sovereign's board of self-dealing and inaccurate disclosure.

"Relational Asks SEC to Require Corrective Release and Mailing," started a December press-release critique of Sovereign CEO Jay Sidhu's holiday letter to shareholders. In another instance, Relational took pains to point out that lead director Daniel Rothermel owned a lawn service used by Sovereign .

"There's a sense that we can't trust these Sovereign people," Relational boss Ralph Whitworth told Institutional Investor last May.

Can't trust 'em? Join 'em. Under the settlement, Relational gets a board seat as well as a say in naming a second new independent director. The first seat will be filled by Whitworth. And what about the other new board member?

Well, he or she "will be selected by Sovereign's board from lists of candidates provided by Relational of high caliber persons of national reputation with no prior involvement with Relational or Sovereign," Sovereign says in a Thursday morning press release.

Relational didn't comment, but we think one independent person of national reputation fits the bill nicely. This former investment banking giant just won exoneration in a closely watched obstruction of justice case. He may not have made a uniformly positive impression on the stand, but a guy can't be good at everything.

Yes, we think Frank Quattrone could be just the right caliber for this bunch.

Dumb-o-Meter score: 79. Anyone can see you can trust Quattrone.
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