By Yi-Wyn Yen

Oil billionaire T. Boone Pickens has decided he is not going to follow activist billionaire Carl Icahn to the ends of the earth.

Pickens told the San Francisco Chronicle that he has sold his 10 million shares of Yahoo (YHOO) for a loss because he doesn’t believe a sale to Microsoft (MSFT) is happening.

Pickens bought the shares in the hopes that Icahn would succeed in getting Yahoo’s board to agree to a sale to Microsoft. The octogenarian admits he doesn’t know how to “write an email” and decided to blindly follow Icahn’s lead. “He goes in first and I jump in behind him,” Pickens told CNBC in an interview in late May.

Icahn’s plans to sell the tarnished Internet portal to Microsoft for a profit have not succeeded. The corporate agitator launched a proxy campaign in hopes of winning control of Yahoo’s board, but Microsoft has said the company is no longer interested in buying all of Yahoo for $33-a-share. Earlier this month Icahn reached a compromise with Yahoo’s board to forgo his proxy fight in exchange for three seats on Yahoo’s board. Yahoo will holds its annual shareholder meeting on Friday, where investors will vote for an extended 11-member board.

Now that the fight’s over, Pickens has decided to cut his losses. “I think that [the] Yahoo management was pathetic,” Pickens told the Chronicle. Pickens did not say how much he has lost in his activist gamble.

Though the most recent regulatory filings don’t show Pickens’s selloff, it’s likely that Pickens has lost roughly $50 million. He bought his shares in the first few weeks of May when Yahoo was trading between $25-$27. In the past two weeks, Yahoo’s stock has slipped to between $20-$22.

By Scott Moritz

Newly merged satellite radio shop Sirius XM says the combination will help trim costs and lead to a positive swing in cash flow in 2009 excluding satellite expenses.

The deal closes nearly a year and a half after it was announced and in that time the once hot-growing new medium has been sideswiped by a rapidly cooling economy and sluggish car sales. But new chief Mel Karmazin remains optimistic about the new chapter in pay radio.

“We have all the tools necessary to begin executing as a combined company with high aspirations for subscriber growth and greater financial performance in part from the significant synergies that we begin realizing literally today — on Day One. We are moving quickly to integrate the operations,” said Karmazin.

Among the areas analysts expect the broadcaster to cut costs is programming expenses. The financial strain could spell the end of massive contracts like the one Howard Stern commanded during the golden era of satellite radio.

The news comes as Sirius reported weak subscriber numbers for the second quarter, another sign that a pinch in consumer spending is squeezing satellite radio sales. Sirius was particularly hard hit on the car sales front. Slumping sales at Ford and Chrysler cut into new radio subscriber numbers. Sirius added 246,221 net new auto customers, well below the 325,000 some analysts were looking for.

The outlook for car sales isn’t exactly improving either, on Monday No.2 car maker Toyota cut its 2008 growth forecast due to high fuel costs and a slowing U.S. economy.

Sirius will give XM shareholders 4.6 shares of Sirius stock, for a deal worth about $2.76 billion. The company will be headquartered in New York and keep the XM facility in Washington, D.C.

By Yi-Wyn Yen

Within hours of being launched Monday, Cuil – a new search engine created by former top Google engineers – was already being touted in the blogosphere as the next Google killer. But unless Cuil (pronounced ‘cool’) can develop an ad platform to rival Google’s, the startup will have a difficult time challenging the search giant.

The comparisons to Google (GOOG) were inevitable. Cuil was founded by several lead engineers from Google, including Anna Patterson, chief architect of the company’s TeraGoogle search index. Cuil also claims its search algorithm scans 120 billion web pages – three times the number that Google sifts through. And Cuil’s spare start page is reminiscent of Google’s minimalist home page.

The launch of Cuil certainly raised eyebrows at Google. Though the company would not comment on Cuil, Google’s web search team stuck it to the small search startup on Monday with a blog post that begins, “We knew the web was big….We’ve known it for a long time.”

Cuil representatives did not return phone calls.

Despite the buzz – and Cuil’s PR folks deserve credit for spinning this David v. Goliath story – it would be foolish to argue that Cuil will be the next big threat to Google.

“It’s a new kind of technology and platform that is going to unseat a company like Google – not a company that’s trying to beat them at their own game,” says Scott Kessler, Standard & Poor’s Internet analyst.

Both Yahoo (YHOO) and Microsoft (MSFT) have spent billions in an effort to make a dent in Google’s paid search business, which accounted for 40% of all online search dollars in 2007, according to eMarketer.

Microsoft CEO Steve Ballmer admitted last week to investors that Google has such a huge advantage over other search engines because it delivers more relevant ads and has more advertisers in its system.

Yahoo has also conceded that it can’t beat Google at its own game. In June, Yahoo struck a deal to run Google’s superior search advertising technology on Yahoo’s web properties alongside its own search results.

Cuil currently offers no ads on its pages. And the company claims it won’t monitor a user’s search habits in order to target advertising the way Google, Microsoft and Yahoo do. That’s an ambitious goal. But one of the biggest advantages Google has over its competitors is that it can provide better search results due to its massive advertising platform.

“Google is receiving so many searches per second and gathering incremental information from new [auction] bids and new advertisements that the search engine gets more relevant and powerful,” Kessler say. “It’s self-perpetuating.”

Cuil, which has raised $33 million, could find its niche in search – or become an attractive acquisition for Microsoft, Yahoo or Google itself. The company says it will stand out because it delivers results with images in three columns and it will scour the web more aggressively than the other big search engines. So far, the site has been sporadically unavailable because of the high volume of searches.

By Scott Moritz

Verizon’s (VZ) strong wireless gains help offset weaker-than-expected video growth and an alarming drop in phone lines.

The New York phone giant posted adjusted second-quarter earnings of $1.9 billion or 67 cents a share, up from $1.7 billion or 58 cents a year ago. Analysts were looking for pro forma profit of 65 cents, according to a First Call tally.

Sales for the quarter were $24.1 billion up from $23 billion last year, and in line with analysts’ expectations.

On the wireless side, Verizon added 1.5 million net new customers, outpacing rival AT&T’s (T) 1.3 million net new customer contracts. Verizon also turned in a strong performance on customer loyalty, with a monthly defection rate of 1.12%, down from 1.19% in the first quarter and 1.26% a year ago. Verizon now has 68.7 million customers compared with AT&T’s 72.9 million users.

But the wireline unit saw an alarming decrease in phone lines. Verizon lost 920,000 access lines in its core landline phone business, adding up to an 11.4% drop from year-ago levels. And Fios, Verizon’s fiber-optic service, added only 176,000 new TV customers, well below the 225,000 target some analysts had anticipated.

Verizon announced Monday that it has now introduced its Fios service to New York. This is Verizon’s first attempt to sell its so-called triple play offer of TV, Net and phone service in New York, where Time Warner Cable (TWC) and Cablevision (CVC) have dominated the market.

Verizon shares were down 26 cents to $34.19 in early trading Monday.

By Yi-Wyn Yen

To compete with Google (GOOG), Microsoft must get more search traffic so it can sell more advertising.

An analyst kicked off the Q&A session that wrapped up Microsoft’s (MSFT) daylong meeting with Wall Street on Thursday by asking CEO Steve Ballmer how he plans to both increase search queries and relevant ads at the same time. Earlier in the day Ballmer referred to the situation as a circular conundrum because advertisers don’t want to sell on Live Search unless there’s more people using the site, and people don’t want to search on the site unless there are more relevant ads.

Ballmer explained there are three ways to increase Microsoft’s search ad performance. First there’s the Live Search algorithm, and Ballmer says he feels pretty good about that one. Next is building brand reputation, which Ballmer admits is “not going to be easy.” Then comes the toughie: Solving the ad relevancy issue.

“We have some ideas about that,” said Ballmer as he nodded his head and stuck his hands in his pockets. “We are going to have to go way out of the box to get into the box.” Ballmer said the Live Search team is working on “two or three different concepts.”

Ballmer didn’t want to get into the details of how it’ll solve its chicken or egg dilemma for online ads, which means Microsoft still is struggling to hatch a plan.

By Scott Moritz

Juniper Networks (JNPR) beat second quarter expectations and says it’s more optimistic about the rest of the year.

The Sunnyvale, Calif.-based Internet gearmaker on Thursday posted earnings of $156.6 million or 28 cents a share in adjusted profit. That is up from the 20 cents in earnings recorded in the year-ago period. Analysts were looking for 27 cents on the bottom line.

The positive report comes as Juniper announced former that Kevin Johnson, Microsoft’s (MSFT) Windows chief and head of online business, would take over as CEO. Kriens will stay on as chairman.

Sales for the second quarter were $879 million, up 32% over the last year at the same time. Analysts had anticipated revenue of $852 million for the quarter ended last month.

“We’re very pleased with the solid results we have delivered for the first half of 2008,” CEO Scott Kriens said in a statement. Kriens added that demand for Juniper’s new gear underscores “our improved outlook for the second half of the year.”

With slightly improved operating margins, Juniper generated net cash from operations of $200.5 million, compared to $199.3 million for the same quarter of 2007.

Tech watchers see Juniper as a good indicator for Cisco’s (CSCO) Internet router business. And the solid performance could help ease concerns of a big  turn down.

By Scott Moritz

Clearing the way to merger approval, XM and Sirius agreed to pay a $19 million fine for violating radio transmission rules.

The move is aimed to end a 2006 inquiry by the Federal Communications Commission into radios that broadcast some signals in adjacent FM radio waves. The FCC stepped in when satellite radio transmissions interfered with conventional radio channels.

The two companies agreed to pay the fine - XM will pay $17 million and Sirius will hand over $2 million – and correct their radio and broadcast transmission problems.

The settlement is expected to pave the way for a 3-2 FCC approval. As the review entered its 18th month, it became clear that the agency was split along political party lines. The swing vote on the deal is Commissioner Deborah Tate, a Republican appointee, who is reportedly close to filing her vote in favor of the deal.

The two FCC Democrats, Jonathan Adelstein and Michael Copps, oppose the combination. Copps Monday gave an unconditional no vote on the deal and on Wednesday, Adelstein voted no after he made no progress getting the companies to agree to conditions like a six-year service price freeze and mandatory public access to a quarter of the combined companies’ airwaves.

Sirius and XM filed for a merger review with regulators in February 2007.  Just over a year later, the Justice Department approved the deal, saying that conventional radio and MP3 players like Apple’s (AAPL) iPods were sufficient competition to keep Sirius from setting high prices.

The FCC was a more difficult hurdle, in part because the agency wrote the original satellite radio charter, which specified that the two radio wave licenses should be in separate hands to foster competition.

In an effort to ease the concerns that the satellite duo would use its monopoly status to gouge consumers, the companies proposed new price plans like 50-channel and 100-channel a la carte  offerings that would cost $13 and $15 a month, prices that would stay static for three years. XM and Sirius currently charge $12.95 a month.

The companies also promised to set aside 4%, or 12 channels, for outside access like public service and minority programming.

But as the merger approval process dragged on for nearly a year and a half, the two companies saw growth cool and losses mount. And as new car sales fell, the satellite radio sector suffered as well. Investors worried about the perpetual need for new financing and the prospects of recapitalization pushed the stocks down. XM shares are down 23% from the pre-merger announcement level and Sirius has dropped 37% in the same period.

Looking ahead, if the companies manage to bring their operations together and find new sources of cash, the new entity will likely take aim at lowering high-priced programming deals like the five-year $500 million contract with Howard Stern, which expires in 2010.

By Michal Lev-Ram

HALF MOON BAY, Calif. – Social networking site MySpace will launch a new music service in September,  CEO Chris DeWolfe announced at Fortune’s Brainstorm Tech conference on Wednesday.

The new offering will enable MySpace members to listen to free streaming music as well as purchase song downloads,  ringtones, T-shirts and concert tickets, DeWolfe told an audience of tech executives during an interview with Fortune senior writer Adam Lashinsky.

MySpace – which was acquired by News Corp. (NWS) in 2005 – became a platform for bands to connect with their fans early on, and the company says that 65% of their members currently embed music on their profile pages. But rival social networking site Facebook has begun to overshadow MySpace. According to new numbers from metrics firm comScore, while MySpace still has more users, Facebook is growing at a faster rate. MySpace is hoping the new music service will boost growth.

“MySpace is more about self expression and individuality,” DeWolfe said when asked for his thoughts on Palo Alto-based Facebook. “One of the reasons why we’re investing so heavily in music is that self-expression and music go together so well.”

But MySpace isn’t the only company trying to find new ways to make money off the digital music industry, dominated by Apple’s (AAPL) iTunes.

Robert Kotick, chief executive of game publisher Activision Blizzard, said his company’s popular Guitar Hero game (which lets users play along to their favorite music by pressing colored buttons on a guitar-shaped controller) will soon start selling songs tracks via an iTunes-like music store.

“People are already coming to us for music,” said Kotick, whose Guitar Hero series has reportedly surpassed $1 billion in sales to date. Kotick said that he’s got four or five teams already working on the upcoming music store, but he also added that there are still kinks to work out when it comes to copyright-protection issues.

By Michal Lev-Ram

HALF MOON BAY, Calif. — In the iPod age, music sound quality has been dumbed down to “Fisher-Price toy” levels, rock star and tech enthusiast Neil Young said Wednesday at Fortune’s Brainstorm Tech Conference.

“Apple has taken a detour down the convenience highway,” Young told the Brainstorm audience after taking the stage for an interview with Time Inc. editor-in-chief John Huey. “Quality has taken a complete backseat – if it even gets in the car at all.”

Photo: Russ Curtis

Young talked about what he considers to be the poor audio quality of MP3s, creating electric-hybrid cars,  (his “obsession”) and a long-term, multimedia archiving project of his entire career (which he says should be available as a series of Blu-Ray discs later this year.) Young hopes that becomes the basis for an alternative digitial platform featuring higher quality sound that will be made available to other musicians.

Young spent most of his time on stage lamenting what he feels is an increasing focus on convenience versus quality in today’s iTunes/iPod-dominated music industry. And he wasn’t afraid to criticize companies – Apple (AAPL) in particular – that he feels have brought down audio standards. An Apple spokesperson wasn’t immediately available for comment.

Huey noted that when he once visited Apple CEO Steve Jobs’ home, the living room featured a turntable and and a stack of LPs.

Young complained that music has become “like wallpaper” – more Muzak than music. “We have beautiful computers now but high-resolution music is one of the missing elements,” he said. “The ears are the windows to the soul.”

By Yi-Wyn Yen

HALF MOON BAY, Calif. – Google chief executive Eric Schmidt passed by the Apple store in downtown Palo Alto Tuesday night and saw a line of people waiting outside. Schmidt joked that perhaps Apple (AAPL) fans just like hanging out at the store, but he assumed they were waiting for the next shipment of the iPhone 3G to arrive.

The success of the new iPhone has the Google (GOOG) top exec excited about his company’s own mobile efforts. “It shows you the power of a device that is a step forward,” said Schmidt in an interview Wednesday at Brainstorm Tech with Fortune senior writer David Kirkpatrick. “The iPhone has a fully functional browser. We can show desktop ads, not mobile ads. That’s a huge change from our perspective.”

Google started to aggressively move into the mobile market in the past year. It is building a mobile platform called Android, and handset makers will deliver the first phones using the new Google software by the end of the year. Google also entered the Federal Communications Commission’s wireless auction last fall and succeeded in getting Verizon (VZ), the 700 MHz broadband auction winner, to commit to building an open-access network.

Schmidt said the innovation and power of the iPhone means better applications and web browsing for consumers and ultimately good news for Google. “The iPhone’s competitors all have devices or devices coming out. It’s really simple. A phone is a GPS, a camera, a computer, and a browser,” he said. The combination of those four means more market opportunities for Google, he added. Schmidt is a director on Apple’s board.

Schmidt predicted that the best applications for social media – now found on networking sites like Facebook and MySpace (NWS) – will happen on mobile phones. One application for Android coming out later this year: A location-based service that tells you where you are, what buildings are around you and what businesses are inside. “The most interesting social applications will be mobile-based because people are always moving,” he said.