By Scott Moritz

Sony Ericsson added a little more static to the troubled mobile phone market Friday with a sales report that was below expectations.

The joint venture between Sony (SNE) and Ericsson (ERIC) said it shipped 24 million phones with an average selling price of about $172 apiece in the second quarter. That compares with 22 million phones shipped at an average price of $189 in the prior quarter. Some analysts had been looking for 25 million phones to be shipped in the $172 average price range. The company also cautioned that its margins had narrowed, which contributed to a pretax profit that it said was about break even. The company did not release profit details.

This is the second warning in as many quarters from the Stockholm phone giant, and also the latest sign of a continued cooling trend in wireless.

“It’s three things in a nutshell,” says IAG Research analyst Roger Entner. “The global market is slowing down, Sony Ericsson’s handset portfolio is getting a little stale and Nokia (NOK) continues to make it hard for the smaller players.”

Even as sales slow, competition is heating up. Apple’s (AAPL) iPhone aims directly at the mid-priced and higher music and camera phones that are Sony Ericsson’s specialty.

The No. 5 phone maker’s latest slip comes two days after Research in Motion (RIMM) delivered less-than-dazzling results, which have since sent its shares down 15%.

Friday’s bad news from Sony Ericsson took a 3% bite out of Nokia shares, as concerns grow over whether the No.1 handset maker will feel some of the pinch of a global phone sales pullback combined with rising material and shipping costs.

“Nokia will have a challenging quarter. The question is how much it will be affected,” says Entner, who adds that Nokia is better than its competitors at controlling costs.

As the largest buyer of phone parts in the world, Nokia is known for throwing its weight around and exerting its influence on suppliers. That’s not good news for big chip shops like Texas Instruments (TXN) or wireless component makers like RFMD.

“We would expect large vendors like Nokia to increase pressure on component vendors to try to offset underlying inflation but this is only a short term fix at best,” JPMorgan analyst Ehud Gelblum wrote in a research note Friday.

Ironically, Motorola may be the least vulnerable to signs of slugglishness in the wireless industry, says Entner. Motorola (MOT) has lost so much of the business, “there’s so little left to lose.” Motorola shares were trading flat Friday.

Google’s new multicultural CFO Patrick Pichette ran Bell Canada’s finances for two years. Image: Bell Canada

By Yi-Wyn Yen

Finding a finance guru to fit into Google’s quirky culture isn’t easy. Google has spent nearly a year looking for a chief financial officer who not only can keep up with the company’s expanding growth opportunities, like mobile communications, but can also roll with offbeat offices and co-founders who invest in space exploration.

But it appears that Google (GOOG) has found the right person in Patrick Pichette, the president of operations of Bell Canada. The search giant announced on Wednesday that Pichette, 45, will replace its longtime CFO, George Reyes, in August.

Pichett’e background certainly should be a nice addition to Google’s mobile efforts. He is a 20-year veteran of the telecommunications industry who helped migrate Bell Canada, the country’s largest phone company, from a traditional wired landline outift to an Internet protocol network. Pichette has run the company’s network operations for the past 3 1/2 years, and has helped lower costs by more than a billion dollars.

“Telecommunications companies traditionally are pretty hierarchical companies. Patrick took that away and made us much more customer-focused. It was a huge change that substantially improved productivity, ” says Michael Sabia, the CEO of Bell Canada Enterprises, which is being sold to three buyers, including private-equity shop Providence Equity Partners and Canada’s largest pension fund, for $51 billion.

Sabia says Pichette, a former Rhodes Scholar and McKinsey consultant, also has the personality to work at Google. “He’s kind of a free spirit who has eclectic interests,” Sabia says. For spring break last year, Pichette took his three teenage kids to an African village in Zambia to live for two weeks. “This wasn’t a safari or some tourists visiting. It was a village where people there didn’t speak English and there wasn’t running water. They spent two weeks on the floor. Patrick brought his family there to hang out and figure out how to make things go,” Sabia says. “I told him he needed to get his head examined.”

Pichette was not made available for comment by either Google or Bell Canada.

Pichette’s new job will certainly be much cushier. Google is paying the new CFO an annual salary of $450,000, which is the standard pay for its top executives, according to an SEC filing. The company will also pay him a $500,000 signing bonus and another $500,000 after he finishes six months. He’s also eligible for a bonus that’s worth 150% above his salary. Finally, he’ll receive 11,112 shares of common stock and 5,556 shares of restricted stock.

Reyes, who announced his intention to retire in August, 2007, will stay on to report Google’s second quarter earnings. He’s sold more than $200 million shares, according to regulatory filings, since the company went public in 2004.

By Scott Moritz

Yahoo’s (YHOO) latest reorganization aligns three divisions under president Sue Decker.

Among the top changes, Ash Patel has been put in charge of the company’s Global Products group, Scott Dietzen takes the top communications slot and Hilary Schneider will take over a newly created job of U.S. unit chief, according to a company press release.

Not mentioned in the release is the status of Brad Garlinghouse, the author of the so-called peanut butter memo that criticized the company’s spread-thin-over-everything strategy. In BoomTown, a blog run by The Wall Street Journal and the outlet that first broke the news of the impending shakeup, author Kara Swisher says that Dietzen has taken over most of Garlinghouse’s duties.

The move comes in the wake of a failed takeover of Yahoo by Microsoft (MSFT) and a controversial search outsourcing partnership with rival Google (GOOG).

Yahoo shares fell 2% to $21.58 Thursday.

By Michal Lev-Ram

Like leather-trimmed interiors, navigation systems and sunroofs, in-car Internet connectivity will soon be just another add-on feature offered by automakers.

Chrysler plans to launch the first such service, called UConnect Web, in August. The company says it will make wireless Internet available on all of its 2009 models (including Chrysler, Jeep and Dodge vehicles) for $29 per month. To sign up for the service, customers will also have to pay $499 to have a router installed in their car.

That means people will soon be able to check their e-mail or play online games using a laptop or other Internet-connected device while on the road.

With an increasing number of states banning the use of cell phones while driving (unless drivers use a headset), a service that offers even more in-car distractions is already drawing safety concerns. However, the car maker – and the San Francisco-based provider of its in-car Internet access, Autonet Mobile – insist that UConnect is for the backseat, not the driver.

“Instead of buying DVD systems, parents can get their kids Internet access for the back of the car,” says Sterling Pratz, CEO of Autonet Mobile. Pratz says the service will enable backseat passengers to watch YouTube clips, look up social networking sites or play online games. “And moms and dads in the passenger seat will also be able to do things like make dinner reservations using their laptop in the car.”

San Francisco-based Autonet Mobile already provides in-car routers and Internet service to Avis Rent-a-Car, but this is its first deal with an automobile manufacturer.

Chrysler’s truck- and SUV-heavy business has been particularly hard-hit by the recent shift to smaller cars. It’s reported that the company’s CEO, Bob Nardelli, recently told employees that he anticipates U.S. sales in June would fall to the lowest level in 16 years.

Chrysler is hoping that offering a high-quality experience inside the car will help drive sales. While it’s the first automaker to provide built-in Internet access, it’s not the only one trying to differentiate itself with increased connectivity on the go.

Last year Ford (F) and Microsoft (MSFT) teamed up to offer Sync, an in-vehicle communications and entertainment system that lets drivers activate music using voice commands and have their text messages read aloud via text-to-speech technology. Ford has said it estimates that there will be one million Sync-equipped vehicles on the road by 2009.

“The average commute in America is now 30 minutes, and people want to maximize the time they spend in the car,” Jim Buczkowski, director of electrical systems engineering at Ford said in a company release about the service earlier this year.

While introducing more things for people to do while driving doesn’t sound like the safest trend, the reality is that Americans increasingly expect to stay connected to their e-mail, music and other personal content whenever and wherever they want.

Indeed, Autonet Mobile’s Pratz says the Chrysler deal should be the first of several: “They were the first ones to move.”

By Scott Moritz

Research in Motion (RIMM) missed its target and guided down its profit forecast for the current quarter.

Shares of the BlackBerry maker sank 11% after the company posted adjusted earnings of 84 cents a share, which compares with adjusted earnings of 39 cents a share in the year ago period. Sales for the fiscal first quarter were $2.24 billion compared to $1.08 billion last year.

Analysts had expected a pro forma profit of 85 cents on $2.27 billion in sales.

Looking ahead, RIM expects adjusted profit to be in the range of 84 and 89 cents a share on sales of $2.60 billion.

Analysts were looking for a 90 cent pro forma profit on $2.44 billion in sales.

“We are pleased to report another record quarter with revenue increasing 107% as the popularity of the BlackBerry platform continued to spread in business, government and consumer segments,” Co-CEO Jim Balsillie said in a press release. 

The results disappointed investors who had recently sent the stock to record levels betting on strong growth in smartphone sales and a blowout quarter.

“The top line looks pretty solid, but what I think we may be seeing is a lot higher spending on sales and marketing,” says one Wall Street analyst referring to RIM’s efforts to counter the impact of Apple’s iPhone debut next month.

RIM says it added 2.3 million net new BlackBerry subscribers in the quarter for a total subscriber count of 16 million.

By Michal Lev-Ram

Telephone companies are notorious for their price wars. But a new service from T-Mobile may spark one of the fiercest battles in recent years.

Starting July 2, T-Mobile customers will be able to make unlimited domestic calls using a regular home phone connected to the Internet. Unlike a traditional wired landline, the new service uses Voice over Internet Protocol (VoIP), a technology that converts calls into a digital signal that travels over the Internet. While VoIP has been around for years, T-Mobile’s offering brings something new to the table: At $10 a month, It costs less than half the price of comparable “digital” phone plans from Vonage (VG), Comcast (CMCSA), AT&T and Verizon.

“It’s a very, very disruptive price point,” says Michael Gartenberg, an analyst with Jupiter Research. “Ten dollars a month is pretty darn close to free.”

T-Mobile’s biggest rivals, AT&T (T) and Verizon (VZ), offer VoIP services for about $25 per month. But because both are afraid of cannibalizing their waning landline business, they’ve been cautious about cutting prices. T-Mobile, which has focused on selling access to its cellular network and Wi-Fi hotspots, hasn’t had a traditional landline business — until now. That puts T-Mobile, the fourth-largest U.S. carrier, in a prime position to undercut its competition by offering significantly cheaper VoIP rates.

The new service, dubbed T-Mobile @Home, comes with some strings attached. For starters, it’s limited to new or current T-Mobile cellular customers who spend at least $40 per month on their wireless bill. Subscribers will also need to commit to a two-year contract and purchase a $50 Internet router (broadband connection not included) which they can connect to any regular phone.

T-Mobile’s VoIP foray faces some challenges. The lengthy contract aside, more and more consumers no longer see the value in having a home phone. According to CTIA, a wireless association, mobile penetration has now reached 84% in the United States, and 15.8% of U.S. households have disconnected their home phone, up from 8.4% in 2005.

Forrester Research analyst Charles Golvin says that many potential “cord-cutters” don’t want to give up a home line and have opted for cheaper VoIP services instead. “T-Mobile’s offer is, to a significant extent, aimed at reticent cord-cutters or those without a landline who have reason to miss the service,” Golvin wrote in an e-mail.

T-Mobile is betting that most Americans will keep a home phone. The company is hoping its low-priced VoIP service will not only get current mobile subscribers to sign up, but will also attract customers from rivals.

Gartenberg, the Jupiter Research analyst, thinks it’s just a matter of time before T-Mobile’s competitors respond. “This is going to put a lot of pressure on those folks to match these prices or rethink how they’re offering these services,” he says.

By Yi-Wyn Yen

A major Yahoo investor has been urging executives from both Microsoft and Yahoo in the past couple of weeks to revive their talks, and it looks like those efforts haven’t gone to waste.

A source at Microsoft told Fortune on Tuesday that while there was “no big deal” in the works – meaning a full acquisition of Yahoo – he implied that his company hasn’t ruled out the possibility of buying Yahoo’s search business. Shares of Yahoo had reached a five-month low Tuesday, but finished up nearly 3% after two tech blogs reported that Microsoft was revisiting its bid for the battered Internet portal.

The Yahoo investor said he has spoken with company board members about reconsidering Microsoft’s (MSFT) offers to buy the whole company and, failing that, part of it. Yahoo directors, the investor said, have admitted that they made miscalculations in negotiations with Microsoft CEO Steve Ballmer. “They dragged this out for a couple months and were shocked when Steve went away,” the investor said.

Calls to Yahoo were not immediately returned.

The Yahoo investor said that selling Yahoo’s search business to Microsoft is a far better alternative than its Google ad pact. Shares of Yahoo (YHOO) dropped nearly 18% in value after the company announced it ended buyout talks with Microsoft on June 12. Instead, it said it would ramp up an online ad partnership with Google (GOOG) that would run some of Google’s search ads. “I would take anything that beats the current status quo,” the investor said.

Shares of Yahoo have been steadily falling for the past two weeks after the company announced it ended buyout talks. On Tuesday, Yahoo’s shares opened at $21.18, the low since Microsoft made an unsolicited offer to buy the company on Feb. 1.

A Microsoft source shot down rumors that the software giant is again interested in acquiring all of Yahoo. Microsoft had previously offered $33-per-share for the company and walked away from that bid in early May. “Nothing has changed in that respect,” the source said. Asked if Microsoft was making a small deal, the source chuckled and said he had no comment.

Microsoft, however, has always been open to discussing an alternate deal. One day after Yahoo said talks were off for good, Microsoft’s top advertising executive Kevin Johnson revealed in a letter to employees that the company had returned with a partial offer to buy Yahoo’s search business for $1 billion and invest another $8 billion in Yahoo.

Silicon Valley blog TechCrunch on Tuesday cited sources who indicated that Microsoft and Yahoo were discussing a full buyout. CNET reported that a partial deal was being kicked around.

Wall Street analysts took in the latest rumors with mild amusement. Said Thomas Wiesel Partner’s Christa Quarles, “This is about the 8,000th time I’ve heard Microsoft is going to buy Yahoo. Everyone’s parsing out what their sources are saying or not saying. They’re reading tea leaves at this point.”

That said, both companies have reason to keep talking. Yahoo is under heavy pressure from dissatisfied investors, and it’s facing a brain drain as top employees leave for greener pastures. Microsoft, meanwhile, views Google as its biggest competitive threat and has yet to find an alternative to catch up to the search giant in the online ad market.

Analysts say they’re not convinced the deal ever went away because neither Microsoft or Yahoo have offered a better Plan B. Wrote Ben Schachter in a recent note to UBS clients, “We continue to believe that, at some point, Microsoft will acquire all of Yahoo. Unfortunately, for all of us that are beyond tired of the constant news flow and speculation around a possible Microsoft/Yahoo deal, the Google/Yahoo agreement will not put an end to this story as we still think Microsoft needs Yahoo.”

By Michal Lev-Ram

A flurry of new state laws making it illegal for people to drive while holding a cell phone is expected to be a bonanza for Bluetooth, a wireless technology that lets devices communicate with each other.

Connecticut, New Jersey and New York are among those states that have already enacted laws requiring drivers to use a headset when talking on the phone. Similar laws take effect in California and Washington on July 1 while other states are considering such legislation.

That’s why Bluetooth gadget makers, including Plantronics (PLT) and Jabra, and retailers like Radio Shack (RSH) and Amazon.com (AMZN) are betting that headsets will someday become as ubiquitous as sunglasses.

Mike Faith, chief executive of online retailer Headsets.com, says past hands-free laws have led to a rise in sales. “[Sales] have spiked in the past, with the three weeks around any law change being when activity dramatically goes up,” he says. “End of June through July our phones are going to be ringing off the hook.” Faith, who says his company sells 600 to 700 headsets per day, saw sales surge 35 percent to 45 percent on average in states with new hands-free laws.

Bluetooth gadgets first came on the scene in 2000. Back then the bulky headsets were expensive, could connect to few phones and made you look like Lieutenant Uhura opening hailing frequencies.  Today, headsets sport stylish designs and over 60% of the phones sold in the United States come with built-in Bluetooth.  Headsets now sell for anywhere from $25 to several hundred dollars.

Analysts are bullish on the future of Bluetooth headsets: A recent study from ABI Research projects that 2.4 billion Bluetooth-enabled devices will be shipped worldwide by 2013. About a quarter of those will be wireless headsets.

To lure customers, Headsets.com is promising a free cell phone headset to anyone in California or Washington who receives a ticket for using their phone while driving – provided they send the company a copy of their traffic citation.

Plantronics, one of the largest manufacturers of Bluetooth handsets, has also launched a marketing campaign around hands-free laws in California and Washington. Clay Hausmann, the company’s VP of corporate marketing, says it’s created a website designed to educate people about the upcoming legislation and is collaborating with retailers like Wal-Mart (WMT) to promote headsets. California in particular is an attractive market for Plantronics.

“It’s certainly the largest market where we’ve seen the law go into effect,” says Hausmann. “Especially if you factor in the commute-heavy cities and areas of California, plus the fact it’s also probably the most tech-savvy state.”

BlueAnt Wireless, a headset manufacturer based in Australia, is also hoping to capitalize on the upcoming legislation by launching two new Bluetooth headsets just a few weeks before the latest hands-free cell phones laws take effect.

By Scott Moritz

Time Warner Cable (TWC) is raising some of the money it promised to pay shareholders when the cable unit splits from the big media parent Time Warner (TWX).

In a federal filing Tuesday, the New York cable giant says it hopes to raise $5 billion in cash through a debt sale that is expected to close Thursday. Proceeds from the sale will help pay for the $10.9 billion planned special dividend going to Time Warner shareholders, according to the filing. Fortune and CNN Money are owned by Time Warner.

The cable shop is selling three notes: $1.5 billion worth of notes with a 6.20% interest rate due in 2013, $2 billion in notes with interest of 6.75% due in 2018 and $1.5 billion in notes carrying an interest rate of 7.30% due in 2038.

Last month, the company announced the terms of its split calling for a juicy one-time dividend of $10.27 a share to Time Warner stakeholders. The bulk of that payment, or $9.26 billion, will go to Time Warner, which holds an 85% stake in the cable unit. After the payment, Time Warner will distribute its stake to Time Warner Cable shareholders.

To make sure the deal happens, Time Warner secured a $9 billion bridge loan from its banks and will tap $2 billion from its credit line for backup financing.

The move continues a plan set in motion after activist Carl Icahn in 2006 pushed Time Warner to break its empire into four pieces. In the Time Warner Cable split up, Time Warner will effectively saddle the cable unit with $10 billion in debt on top of the $13.5 billion on Time Warner Cable’s books. Time Warner Cable expects to raise a total of $9 billion in cash through debt sales. A company representative said he did not know when the company would try to raise the next $4 billion.

The massive dividend gives the parent company new financial flexibility to increase its own dividend or make acquisitions. TWC’s public shareholders get a pile of cash up front to help numb the pain of the heavy debt burden. 

The price of independence is high, not only in the form of interest payments. TWC is becoming independent at a time when industry competition just keeps getting tougher. Time Warner Cable faces a new rival in its lucrative New York market as Verizon (VZ) is set to invade Manhattan with its fiber optic powered video network known as Fios. Time Warner Cable is also committed to spend $550 million on a new WiMax wireless broadband network project headed by Sprint (S) and Clearwire (CLWR).

By Scott Moritz

Twin telco titans Verizon (VZ) and AT&T (T) got slapped with downgrades Monday from UBS as the pinch on consumer spending puts a chokehold on business.

“The weak economy is pressuring wireline fundamentals at the Bells more than expected,” UBS analyst John Hodulik wrote in a research note Monday downgrading both shops to neutral from buy. The acceleration of core residential phone line service cancellations is not being offset by growth in new so-called triple play services like broadband and video, he writes.

Among the looming concerns is the sudden slowdown in broadband growth at AT&T as price hikes kick in and competition heats up. And wireless, the showcase growth unit that once masked all the laggard wireline business, is now about to turn ugly, says Hodulik. You can thank AT&T and Apple’s (AAPL) new iPhone for the opening shot on a new subsidy war for big-spending mobile phone subscribers.

“We remain concerned regarding the slowdown in subscriber growth. While pricing has been relatively rational in the marketplace, we believe AT&T’s substantial subsidy on the 3G iPhone takes the competitive environment to a new level.”