UPDATE: Microsoft Downplays Impact of Hack

The figurative klaxon alarms wailing in Redmond have died down to a low chime as investigators narrow their focus on what a hacker might have compromised inside Microsoft's internal network.

A Microsoft spokesman said Friday afternoon that a hacker had managed to view -- but not alter -- source code to Microsoft software, but said the code was for a product under development that wasn't due to be released for "several years."

"The situation appears to be much narrower than we originally thought," said Microsoft spokesman Richard Miller. "We have no evidence that the hacker gained access to the source code to any of our products in release."

According to a Microsoft statement posted on the company's Web site, an investigation has produced "no evidence" that the intruder gained access to source code for any of the company's major products, including Windows Me, Windows 2000 or Office.

"We have no reason to believe that any of our customers are affected," the company asserted in the statement, in which it called the incident an act of "industrial espionage."

Miller said that investigators from the U.S. Federal Bureau of Investigation were looking at the case, and that there have been no arrests, but could not comment further.

Microsoft discovered Wednesday that hackers had infiltrated computer systems at its Redmond, Washington headquarters, using a Trojan horse virus program embedded in an e-mail attachment. The intrusion was reported in Friday's Wall Street Journal.

The QAZ-Trojan will send information to an external e-mail address, and in Microsoft's case the address was in St. Petersburg, Russia and the information was passwords, a Microsoft spokeswoman who asked not to be named said earlier today. Microsoft contacted the F.B.I. on Thursday, she said.

Contrary to reports published earlier which suggested that Microsoft's networks may have first been breeched as long as three months ago, a source close to the investigation said this afternoon that the hackers had access to Microsoft's internal systems for six weeks or less.

"It's very rare that a company would reveal that it had been hacked this way ... it appears that it was serious," said Richard Stiennon, a security analyst for the market research firm Gartner Group Inc. "We've seen that they have a good incident response team. Most corporations wouldn't know what the next step to take is."

"Even with all the security in place (at) Microsoft, and that Microsoft is the most attacked (company) in the world, this says that someone can still find and exploit weaknesses," Stiennon said.

The source code for Microsoft programs like the Windows operating system is under more-or-less constant modification by Microsoft's team as they look for errors and work on upgrades, said Russ Cooper, the moderator for an online forum for computer security, NTBugTraq.

Changes in source code would also have a ripple effect, he noted. "It's not like the copy of Windows you buy on a CD-ROM in the store," he said. "What if I make a change in Windows Me that will be shipped to consumers with a 'back door,' so I can break into their systems? The possibilities are endless. You can go off in 97 different directions."

Microsoft, in Redmond, Washington, can be reached at can be reached at http://www.microsoft.com/.

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