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SAN FRANCISCO (Reuters) - IBM (IBM.N) is under investigation by the U.S. Environmental Protection Agency over an $80 million bid it made in 2006 to modernize EPA financial systems and has been suspended from seeking new contracts with all U.S. agencies, the company said on Monday.

In addition, IBM said the U.S. Attorney's Office for the Eastern District of Virginia had served IBM and certain employees with grand jury subpoenas requesting testimony and documents on interactions between the EPA and IBM employees.

International Business Machines Corp, the world's largest provider of computer services, said it only learned on Friday of the temporary suspension from the Environmental Protection Agency (EPA) tied to possible violations of ethical bidding provisions on an EPA contract IBM had submitted in March 2006.

IBM shares, which closed up 57 cents at $115.14 in regular New York Stock Exchange trading ahead of the disclosure, lost $1.75, or 1.5 percent, to trade at $113.39 in extended trade.

The temporary suspension applies to all federal agencies and IBM business units. IBM may continue work on existing contracts as of the date of the suspension, unless a particular agency directs otherwise, the company said in a statement.

IBM spokesman Fred McNeese said the company had been blindsided by the government suspension. IBM plans to cooperate in the investigation but will fight to limit the scope of its suspension from bidding on new contracts, he said.

“We are going to cooperate with investigators but we are also going to take all appropriate actions to challenge the scope of this action,” McNeese said in a telephone interview.

The company started receiving calls on Friday from outside parties informing it that IBM's name was on a Government Services Administration site listing parties barred from bidding on federal contracts, McNeese said. After inquiries, IBM received a letter of suspension from the EPA, he added.

The spokesman for Armonk, New York-based IBM said the bid covered a financial systems modernization contract that has yet to be awarded. He confirmed that the value of IBM's bid was around $80 million and was for a systemwide EPA project.

INFORMATION PROVIDED BY EPA EMPLOYEE

“What we are saying is that the case stems from information provided by an EPA employee to IBM employees,” McNeese said. “Prior to Friday, there was not a hint that there were any type of issues with this contract.”

McNeese referred further questions about the contract to the EPA.

EPA Press Secretary Jonathan Shradar said in a statement that his agency temporarily suspended IBM from receiving new federal contracts or assistance on March 27. The contract at issue was never awarded after questions arose over the IBM bid, he said.

“As the matter is currently pending before the suspending official, the agency will have no further comment at this time,” the EPA official said in a statement.

IBM said it was unaware of any potential action by the EPA or the U.S. Attorney's office until March 28.

“IBM has initiated discussions with the EPA and the U.S. Attorney's office to obtain additional information and is cooperating with the investigations,” IBM said in a statement.

Under federal procurement rules, IBM has 30 days to contest the scope of the suspension. The ban on federal contracts can last up to one year, pending the completion of the government investigation.

Depending on how long the suspension remains in place, IBM could potentially lose out on U.S. government contracts worth hundreds of millions, even billions, of dollars that major rivals such as CSC (CSC.N), EDS (EDS.N) or Affiliated Computer Services Inc (ACS.N) could be in a position to win instead.

IBM said it has served the federal government for many decades as a vendor in good standing and is “committed to the highest standards of business ethics.” All employees receive business conduct training with special training for employees seeking federal government business, it added.

IBM grew up out of a company founded by former U.S. Census bureau employee Herman Hollerith, who developed punch-card tabulation machines to automate counting of the 1890 census. The Computer-Tabulating-Recording Co was renamed IBM in 1924.

(Editing by Braden Reddall, Andre Grenon and Mohammad Zargham)

SAN FRANCISCO - An iMac owner sued Apple Inc. Monday claiming the 20-inch iMac desktop computers can’t display the “millions of colors” Apple promises in promotional materials.

The Cupertino-based company touts that ability on its Web site and other marketing material even though it knows iMac monitors can display only 262,144 true colors, according to the lawsuit, filed in U.S. District Court for the Northern District of California.

Users are fooled into seeing many more colors because the monitors use technological tricks that involve showing many similar shades at high speeds to create the illusion of the desired shade, according to the lawsuit.

Those techniques can cause “crippling” problems for people editing pictures and videos because the colors don’t always appear entirely smooth, the lawsuit said.

The plaintiff, Texas resident and iMac owner Chandra Sanders, is seeking class-action status for the lawsuit.

The lawsuit targets the 20-inch “Aluminum iMacs” introduced in August 2007, saying the 24-inch versions are capable of representing millions of colors.

Apple said it doesn’t comment on pending litigation.

When the iPhone went on sale in the U.S. last June, many observers predicted that it would ignite sales in the broader smartphone market. After nine months on sale here, and its more recent rollout in parts of Europe, it is now clear that the iPhone has done just that, analysts at the Smartphone Summit in Las Vegas said on Monday.

In the U.S., the number of people with smartphones doubled last year to about 14.6 million, said Mark Donovan, an analyst at M:Metrics. Following years of sluggish sales, smartphone sales are growing much faster than the overall rate for mobile phones, he said.

The iPhone, with its novel Web browsing experience and user interface, has helped drive excitement for the sector despite its relatively small sales. While more than 188 million Symbian phones have sold since the software's inception, Apple had sold 3.7 million phones by the end of 2007.

The buzz around the iPhone extends even to places where it isn't officially available, said Jonathan Goldberg, senior analyst at Deutsche Bank Equity Research. On a recent trip to Asia he saw the phones for sale at a 40 percent premium– in a market where Apple hasn't begun selling the phones or done any advertising.

Ironically, some analysts said they weren't sure the iPhone should even be considered a smartphone. “The presence of a smart operating system on a phone doesn't inherently make it a smartphone,” said Bill Hughes, an analyst at In-Stat. He defines a smartphone as a device for which third parties can make applications that users can download and run in native mode. Even once applications come out based on the iPhone software development kit, it's unclear if they'll do more than existing Java applications, which run on simple feature phones, he said.

The buzz around the iPhone is loudest in North America and Asia, while the reception in Europe has been more muted. “In EMEA, the volumes there are probably below what Apple would have wanted,” said Pete Cunningham, senior analyst at Canalys. “It boils down to the fact that people in Europe aren't used to paying for their phones. Apple will need to look at their business model if they want to gain more traction moving forward.”

In addition, users in Europe might be waiting for a 3G version of the phone before buying, said Goldberg.

Still, the iPhone is driving more interest in smartphones, as evidenced by how it dominated the discussion at the Smartphone Summit analyst panel. Despite its much larger customer base, Symbian, which is the platinum sponsor of the event, was barely mentioned by the panelists. The Smartphone Summit is a conference that typically runs the day before the CTIA mobile phone conference starts.

Few analysts, if any, would have predicted several years ago that a discussion about smartphones would center so heavily on a device from Apple.

“A few years ago we might have thought we'd see consolidation [in the smartphone market], but what we're seeing is continued, increased competition,” Donovan said.

After Symbian, BlackBerry and Windows Mobile dominated the smartphone market for years, both the iPhone and Google, with its Android mobile operating system, have joined the fray. The new entrants promise to keep reshaping the future of the smartphone market.

A New Zealand teenager accused of being the ringleader of an international cyber-crime network has been convicted.

Owen Thor Walker, 18, admitted six charges of using computer for illegal purposes and will be sentenced in May.

Police allege the group infiltrated more than one million computers and used them to skim at least $20.4m (?10.3m) from private bank accounts.

He was detained last November as part of an FBI investigation into global botnets - networks of hijacked PCs.

Exceptional talent

A botnet can be controlled over the internet by a single computer.

It installs malicious software on PCs around the world to collect information such as login names, bank account details and credit card numbers.

Walker pleaded guilty to charges of accessing a computer for dishonest purposes, interfering with computer systems, possession of software for committing crime and accessing computer systems without authorisation, the New Zealand Press Association said.

He faces up to five years in prison for several of the charges, but Judge Arthur Tompkins indicated he was not considering a custodial sentence.

Walker was detained in New Zealand’s North Island city of Hamilton and is reported to have Asperger’s syndrome - a neurobiological disorder which can result in deficiencies in social skills.

Although patients have normal intelligence, some may have exceptional talent in a specific area.

San Francisco - In an environment where anti-virus providers are openly admitting that their products cannot stop many attacks and in which customers are under more pressure than ever before to keep their sensitive data protected, Fortify is touting a new process dubbed business software assurance that it maintains will change the manner in which organizations defend themselves from external threats.

While many companies are using products like Fortify's software vulnerability scanning tools to block the channels most frequently being used by outside attackers, such processes will soon evolve from sporadic exercises into a continuous routine aimed at staving off any and all applications-level threats, company officials said.

From the time that applications are written until they are up-and-running in production, companies will use a plethora of technologies, from Fortify's static code analysis scanners to black box testing tools and penetration testing systems, to secure their code, officials with the vendor maintain.

In that sense, applications security is maturing from a mere testing market into a larger, more continuous process, said Roger Thornton, chief technology officer at Fortify.

“When people think about applications security today, they think of these various types of tests, but what they are realizing today is that they need to be doing this work in a risk management framework, in a more repeatable manner,” Thornton said. “Companies cannot keep addressing this process from the standpoint of looking at individual point products — they need to approach it from the perspective of business software assurance.”

Leery of having the idea pigeonholed as mere vendor marketing, Thornton said that an ecosystem of providers will drive business software assurance, or BSA, including companies whose tools are used by developers as software code is being written, such as its own, through to the so-called black box testing technologies used to test live applications.

Fortify sells a bundle of static code analysis tools and more “dynamic” scanning technologies for use by software quality assurance testers, along with some real-time applications monitoring capabilities for use after programs go live.

With attacks having moved to the applications-level in dramatic fashion over the last several years, and new compliance regulations holding companies more responsible for vulnerabilities in their systems, the need to adopt risk management throughout the development lifecycle is rapidly being brought into focus, Thornton contends.

“If you have the right risk management approach within the development process, you can go a lot further toward making applications impervious toward attacks,” he said. “We're in the nascent stages of this whole idea of software assurance, but we believe that this is how customers, developers, and government agencies are going to begin looking at this problem, even as soon as over the next six months.”

As part of the BSA process, organizations will require that business partners and even their customers are doing their own due diligence in keeping vulnerabilities out of their applications, according to Fortify's espoused vision.

It's no coincidence that the company announced its backing of the BSA concept simultaneous to the release of its new Fortify 360 product line, which is more expansive than the company's previous products in terms of its reach across various stages of applications development.

However, the product was tailored to reflect emerging demands from the firm's customers, some of whom are already mature enough in their development operations to embrace the BSA process, Fortify executives said.

Officials with at least one of the company's customers, online stock trading provider Scottrade, said that they are moving in the direction of BSA, even if they have yet to adopt that nomenclature for their work.

Scottrade and its rivals, including eTrade and other online stock sites, have been among those businesses who have publicly announced significant financial write-offs driven by applications-level attacks on their trading systems.

The key idea is approaching applications security as a process, rather than on a more piecemeal basis, as has been common practice for many firms up until now, said Grant Bourzikas, director of information security at Scottrade.

“To really address the security problem, you have to fix your code; intrusion prevention, Web applications firewalls, and a lot of other security technologies don't address the root cause, which is poor code left vulnerable that forces people to write signatures to protect at the network the level,” Bourzikas said. “Of course we use all those products, and we have a traditional layered security approach, but by better securing our code and having this two-pronged effect, we can protect ourselves and our customers a lot better.”

Whether or not the market will wrap its arms around the phrase business software assurance or merely view the process as part of a common SDLC (secure development lifecycle) program, the notion of continuous code and applications scanning is one that will continue to catch on with more companies, the executive said.

Yet, as important as any technology is the cultural change that must be affected among developers if the strategy is to succeed, said Bourzikas.

“Tools like this can help with SDLC, but you also have to consider the awareness issue,” he said. “People have to better understand all the risks, because no one goes out and tries to write code that is insecure by default, they've been told to write something that works and they meet those requirements. We're hoping to teach our developers on what they need to protect, so in that sense, education is every bit as important.”

WASHINGTON (AFP) - Technology giant IBM said Monday it had been temporarily suspended from seeking new business with US federal agencies, amid an investigation into possible procurement irregularities.

The suspension was issued by the Environmental Protection Agency (EPA), which is probing “possible violations” of federal procurement rules in a bid for EPA business originally submitted in March 2006, IBM said in a statement.

The move applies to all federal agencies and IBM business units, although existing contracts may continue unless a particular agency says otherwise.

IBM also said the US Attorney's Office for the Eastern District of Virginia had served the firm and certain employees with grand jury subpoenas requesting documents and testimony on interactions between the EPA and IBM.

The company said it had “served the federal agency community for many decades as a vendor in good standing, and is committed to the highest standards of business ethics.”

IBM said that prior to the suspension notice, it did not know it was being investigated, and intends to challenge the action.

It has 30 days to contest the scope of the suspension, which could continue for up to a year while the investigation continues.

SACRAMENTO - The Sacramento Bee on Monday named a new publisher to guide the newspaper as it struggles with declining revenue and tries to extend its reach on the Internet.

Cheryl Dell, president and publisher of The News Tribune of Tacoma, Wash., will replace Janis Heaphy, who announced her retirement Monday.

Both papers are owned by The McClatchy Co. of Sacramento, which has been struggling financially since it acquired Knight Ridder newspapers in 2006.

The newspaper industry in general has seen declines in circulation and ad revenue in recent years, as readers and advertisers have migrated to the Internet. The Bee has been hit especially hard by the downturn in California’s real estate market, which has had ripples through the state’s economy.

“We are indeed fortunate to have someone of Cheryl’s considerable abilities ready to step in and lead the Bee,” McClatchy Vice President Frank Whittaker said in a statement.

Dell will head her third McClatchy newspaper when she takes over on April 14.

She has been president and publisher of The News Tribune since 2004 and was publisher of the Tri-City Herald, also in Washington, from 2000 to 2004. McClatchy said it is looking for Dell’s replacement in Tacoma.

Dell said it was too soon to predict what changes she might make at the Bee or whether that could involve reorganization or job losses.

“It’s challenging times everywhere. Sacramento is not unique in that way,” she said in a telephone interview. “I do think you can have some wonderful outcomes from adversity.”

Dell, 48, is a Modesto native and graduate of Sacramento State University. She joined McClatchy in 1997 as advertising director of The Modesto Bee. She became vice president of sales and marketing at The Fresno Bee in 1999.

Heaphy, 56, became The Sacramento Bee’s publisher in 1998 after a marketing career at the Los Angeles Times. She is getting married and said she plans to move to Sun Valley, Idaho.

“Under Janis’ direction, The Sacramento Bee earned many of journalism’s highest awards, while enthusiastically embracing digital opportunities,” Whittaker said in announcing the change. “In many of those years, the Bee achieved record revenues. In the last several years, Janis has made many wise decisions to reposition and restructure the Bee to meet new economic challenges. That’s a credit to her and the senior team she built around her.”

McClatchy Co. is the nation’s third largest newspaper company, with 31 daily newspapers among its holdings.

SAN FRANCISCO (Reuters) - Google Inc said on Monday it is taking the next step to make its Web-based software useful in the real world of spotty Internet access by allowing users to edit word processing documents offline.

The world's top Internet company said it will begin over the next several weeks to allow users of its Google Docs word processing application to edit documents without an active Web connection, on planes, trains and other disconnected spots.

The offline feature of Google Docs temporarily stores documents changes on a user's local computer. Once reconnected to the Internet, any changes the user made will automatically be synchronized and stored on Google-hosted computers.

“This is still early days. We're working to make more Web applications and functions work where connections are unavailable,” Google said in a statement.

These include the ability to edit spreadsheets and viewing or editing presentations, among other applications Google now offers online, the Mountain View, Calif.-based company said.

Offline editing is a free feature using a technology known as Google Gears that the company introduced around 15 months ago to application developers to build offline features into their own programs.

The technology already works within Google's news feed reader, Google Reader, and applications from independent Web developers such as task-management service “Remember the Milk,” from an Australian-based company of the same name.

(Reporting by Eric Auchard; Editing by Andre Grenon )

Adobe Systems has announced a prerelease alpha of its Adobe AIR software for the Linux operating system. Version 1.0 of AIR for Microsoft Windows and Mac OS X was launched last year.

The move provides additional tools for Linux developers to build rich Internet applications, and RIAs created for Mac and Windows users can now be extended to Linux users without additional platform-specific code.

Joining the Linux Foundation

Adobe also announced that it is joining the Linux Foundation to boost the growth of Linux-based RIA technologies, and that it is making an update to the alpha version of Flex Builder 3 for Linux available. Recently, Adobe released as open source the software development kit for the Flex framework and for BlazeDS, which supports data-intensive RIAs. The company also said it continues to contribute to the open-source Tamarin virtual machine, the core of its Flash player.

David Wadhwani, general manager of Adobe's platform business unit, said these releases “provide a first-class application runtime and RIA-creation tool to the Linux community.”

Flex is a free, open-source framework for building RIAs that can run on the desktop with AIR or in a browser with Adobe's Flash Player. On the desktop, RIAs can have access to offline data that has been constantly updated via the computer's network connection. In the browser, they can operate with the responsiveness more common to desktop applications.

Adobe Versus Microsoft

Al Hilwa, program director at industry research firm IDC, said these moves help Adobe secure additional credibility in the open-source community. “Open-source developers look at all large vendors with a suspicious eye,” he noted, “but Adobe's done much more with the open-source community than, say, Microsoft — relative to its size.”

Hilwa pointed out that Adobe “is trying hard to cozy up to that community,” in large part because of its ongoing battle against Microsoft's Silverlight. Silverlight is a competing platform for RIAs, and some observers have called it a “Flash killer.”

While Adobe's Flex and AIR have been in the spotlight a great deal in recent months, Hilwa said Silverlight ls going to “be quite compelling over time.” He pointed out that it is based on the Windows Presentation Foundation, part of Microsoft's Vista operating system, and thus has a large base on which to build. Hilwa also noted that it took Flash the better part of a decade to reach its current ubiquitous state, with Adobe claiming that the player now reaches more than 98 percent of Net-enabled PCs.

In this context, Hilwa noted, it's in Adobe's interest to appeal to the open-source community so it can “get as many 'votes' as possible” in its competition with Microsoft. Although it's not clear, he added, that Linux is going to be a major operating system for desktops, the support for Linux shows that Adobe is serious about being open and multiplatform.

WASHINGTON - IBM Corp. and certain employees received subpoenas from a federal grand jury seeking testimony and documents relating to a contract it sought with the Environmental Protection Agency, the company said on Monday.

The company also has been temporarily banned from receiving future contracts with all federal agencies.

The suspension went into effect last Thursday “while the agency reviews concerns raised about potential activities involving an EPA procurement,” the agency said Monday in an e-mailed statement. Under a reciprocal agreement among federal agencies, when one issues a ban, the others follow it.

EPA said it will not comment further on the matter.

IBM said the U.S. Attorney’s Office for the Eastern District of Virginia served the grand jury subpoenas, but it did not say when.

The Armonk, N.Y.-based company currently has prime federal contracts worth at least $1.3 billion, or about 1 percent of its 2007 revenue, which largely will not be affected by the suspension, an analyst said.

IBM spokesman Fred McNeese said the company is still talking with the EPA about the alleged violation and would not describe the contract that IBM was bidding on that led to the suspension.

The company learned about the ban on Friday, but “prior to that (we had) no indication there was a dispute between the IBM and EPA. We’ve spent most of the day trying to determine what’s going on,” McNeese added.

The company said it has 30 days to contest the scope of the suspension, which can continue for up to one year pending the completion of EPA’s investigation.

The suspension could be serious, but the reason for the ban is unclear at the moment, said Ray Bjorklund, a senior vice president at market research firm Federal Sources Inc.

“It’s potentially a big deal,” he said.

Bjorklund said that, until the matter is resolved, all federal agencies are likely not to award new contracts or even task orders — pieces of existing contracts — to IBM. The ban could last a few days or a few months, he said. However, Bjorklund said agencies do have some leeway to award a contract if there is a specialized requirement that only the suspended company could perform.

Stan Soloway, who heads the Professional Services Council, a trade group representing IBM and other government contractors, complained that the EPA had imposed the suspension without first informing IBM of its concerns and letting the company respond.

“A suspension is normally not assessed unless there is a very serious infraction that has been not only alleged but documented,” he said. He called the EPA move “very unusual” and said “it has enormous ramifications.”

Shares of IBM fell $1.50 to $113.64 in after-hours trading after it rose 57 cents to close at $115.14 in the regular session.

___

AP Business Writer Brian Bergstein in Boston contributed to this report.