By Scott Moritz

With clouds of economic gloom darkening the tech horizon, mobile phone sales – a former bright spot in the gadget world – look to be slowing.

Tech buyers went away early this fall, and as recession fears intensified, orders have continued to dry up.

There have been a number of ominous signs. First Cisco (CSCO) slashed its outlook and froze hiring. Then Wall Street analysts slashed Google’s (GOOG) search ad sales estimates, predicting the first ever drop off in the company’s growth rate.

Now, market analysts at Gartner have peered ahead into future and declared cell phone sales will likely slow from 2008 levels by 1% to 4%. This would be the first year-over-year slowdown since 2001.

“It is too early to say how long the economic climate will impact the devices market, but we expect market conditions to remain challenging through at least the first half of 2009,” Gartner analyst Carolina Milanesi said in a statement Tuesday.

A low single digit drop in sales certainly isn’t a steep fall and hardly a surprise in light of recent downward adjustments from wireless phone giants Nokia (NOK) and Samsung. But no growth in 2009 would be a major milepost given how newer markets like Brazil, Russia and Asia have been providing plenty of worldwide demand. And in mature markets like Europe and the U.S., smartphone sales are surging, fueled by touchscreens like Apple’s iPhone and Research in Motion’s new BlackBerry Storm.

Gartner now predicts mobile phone sales will hit a growth rate of 8% this year, down from the 15% level in 2007.

By Scott Moritz

It was a tale of two techs Tuesday. Hewlett-Packard (HPQ) surprised Wall Street on Tuesday with a fourth-quarter earnings report that beat analysts’ profit and sales targets. HP shares soared nearly 14% in early trading.

Meanwhile, glass maker Corning (GLW) warned of a sales shortfall in the current quarter as demand for its flat-screen TV and computer panels drops faster than anticipated. Shares fell nearly 12%.

HP posted preliminary adjusted earnings of $1.03 a share, which compares with 84 cents in the year-ago quarter and beats analysts estimates by 3 cents. Sales for the quarter ended Oct. 31 were $33.6 billion, an 19% improvement from revenues of $28.3 billion in the same quarter last year. Analysts were looking for sales of $33 billion, according to Thomson First Call.

The recent acquisition of IT service shop EDS so far has helped HP dodge the full impact of the impending recession. “Our ability to execute in a challenging marketplace differentiates HP, enabling it to increase share, expand earnings and emerge from the current economic environment as a stronger force,” CEO Mark Hurd said in a statement.

Looking ahead, HP predicts pro forma profit of about 94 cents a share on sales of $32.25 billion in the first quarter ending in January. Analysts expected adjusted earnings of 93 cents a share on $33.7 billion in sales. HP says it will release its October quarter earnings Nov. 24.

Corning, however, continues to struggle with order cuts as flat-panels and big-screen TV inventories pile up. The company, the largest maker of liquid crystal display screens for televisions and computers, says fourth-quarter sales will fall below its guidance of $1.1 billion to $1.2 billion. It warned that profits will be at the low end or below its prior guidance of $0.20 to $0.28 a share. Corning did not offer revised financial targets.

By Scott Moritz

Qualcomm (QCOM) joined tech’s growing crowd of downward revisionists as the slumping global economy forced the company to slash its financial targets.

While the San Diego wireless chipmaker turned in a strong fiscal fourth quarter Thursday, Qualcomm like several tech giants – including Cisco (CSCO), Intel (INTC) and Apple (AAPL) – have lowered financial projections as business took a nose dive this fall.

Qualcomm posted adjusted earnings of $1.06 billion or 63 cents a share, a 17% increase over the 54 cent pro forma profit in the year ago period and 3 cents above analysts estimates, according to Thomson First Call.

Sales for the company’s fourth quarter ended in September were $3.3 billion, up $1 billion or 45 % over the same period a year ago. Analysts had anticipated revenue of $2.86 billion.

Similar to Cisco, which saw strong pre-October results yet dire post-October conditions, Qualcomm pulled down its forecast for the current quarter.

“As a result of the credit crisis and the economic uncertainty, our guidance reflects slower end-market device growth for 2009 than previously anticipated,” said CEO Paul Jacobs in a statement.

Looking ahead, Qualcomm cut its December quarter adjusted earnings forecast to a range around 48 cents or 8% below year-ago levels. Sales are now expected to drop 4% on a year-over-year basis to $2.4 billion roughly flat sequentially. Analysts had been looking for earnings of 61 cents on revenue of $2.9 billion.

Qualcomm shares dropped 3% in after-hours trading after closing at $33.05 Thursday.

Qualcomm, which makes components for cell phones and licenses wireless technology, says December-quarter chip shipments will drop to 62.5 million from the 79 million level a year ago. And the company predicts the average selling price for mobile phones will fall to $205 from $211 last year.

By Scott Moritz

Dell (DELL) is trying unpaid vacations (for starters). 

The No.2 PC maker, already grappling with a massive turnaround strategy, is taking a closer look at expenses and has informed employees of a company-wide cost cutting plan that includes voluntary five-day unpaid leaves for everyone.

According to an internal memo confirmed by a company representative, Dell has frozen its hiring and is considering a range of cost-reduction plans.

In addition to the unpaid furloughs, the company is offering buyouts and cutting some of its contract workers. Dell already completed a 10% staff reduction plan this year that was put in place in May.

Sales, particularly in the company’s PC business, started slumping in September, and Tuesday’s move shows they haven’t bounced back yet. Dell is scheduled to release its October earnings results November 20. Some observers are bracing for a shortfall warning before then, given the slumping demand and overall decline of the economy.

Dell has been particularly vulnerable to the slowdown, having started its shift to a retail sales strategy and away from its famed buyer-direct, made-to-order manufacturing scheme. The company had boosted its staff levels for the transition.

In 2005, Dell had 72,000 employees, and by the end of 2006, the company had about 90,000 workers. Dell had 88,000 employees at the end of last year. “These were mostly white-collar workers brought in to build the business,” says Cowen analyst Lou Miscioscia. “Things have gotten a lot more challenging,” says Miscioscia, who doesn’t see the other PC makers like Hewlett-Packard (HPC) or IBM (IBM) having as bad a problem right now.

The big problem for Dell says UBS analyst Maynard UM, is that “they are unfortunately retooling during the backdrop of a weak end market. “

By Scott Moritz

Free. That’s Vodafone’s (VOD) recently-unveiled price for the hotly-anticipated touchscreen BlackBerry Storm from Research in Motion (RIM) in the United Kingdom.

In a sign of just how desperate phone companies are to lock customers in to lengthy contracts, Verizon’s (VZ) wireless partner is willing to subsidize the Storm – which sells for about $500 without a calling plan – in order to lure subscribers in England.

Though a final decision has yet to be made, Verizon is considering the same strategy for the Storm’s U.S. debut next month, according to an industry source familiar with the discussions. Another person close to the company says it’s unlikely the Storm will be free.

Verizon declined to comment on its pricing plan for the Storm.

The fact that Verizon is even considering a free phone highlights the competitive pressure created when AT&T (T) started selling a heavily-subsidized Apple (AAPL) iPhone for $199.

Most industry analysts expect the Storm, which has received favorable reviews, to be priced at or below the iPhone.

While Verizon would like to use its exclusive Storm deal to gain an edge in the smartphone market, selling it for free “would be breaking new ground for Verizon,” said Roger Entner, an analyst with Nielsen IAG’s . “It’s likely that they will put it at $150 and maybe $99 if they want to ship massive volumes during the holiday.” At either price, the Storm would be heavily discounted.

Verizon has come up short on blockbuster phones over the past year and a half as the iPhone has become the icon of the smartphone market. AT&T has been a driving force in the U.S. wireless market thanks to the iPhone, which pulls in an average $95 per month. But that drive has also come at a steep price to Ma Bell, which forks over $375 upfront for every iPhone sold. That cost the company $900 million in the third quarter.

For RIM, the Storm represents its biggest step yet into the consumer market as it tries to derail the success of the iPhone. One major challenge is to get devotees of BlackBerry’s physical keyboard to embrace the clickable touchscreen keypad on the Storm. The iPhone’s onscreen keyboard has presented some difficulties for many typists.

So far, Verizon hasn’t had much success with its touchscreen devices. But the Storm, if it’s a hit, could finally establish Verizon as a player in the red-hot touchscreen market. What’s more, it could not only entice new customers, but also convert old lower-paying customers to more expensive contracts. Each Storm subscriber will have to sign up for a BlackBerry e-mail and calling plan, which currently starts at $80 a month.

By Scott Moritz

Motorola on Thursday said its plan to break up into two companies is on hold, leading the head of its mobile phone business to outline a new plan for reviving the company’s ailing handset business.

Part of the restructuring plan includes the loss of 3,000 jobs, most from the mobile phone division, a company representative confirmed.

Motorola (MOT), which reported third quarter earnings that beat profit estimates but missed sales targets, said the split up called for by activist investor Carl Icahn will not happen in the third quarter next year as planned. Icahn wasn’t immediately available for comment.

Motorola was down 5% Thursday and has seen its stock fall 72% in the past year as the lack of a successor to its once-hot Razr phone wiped out its sales volume and profits amid a declining economy.

Sanjay Jha, who took over as head of the handset business in August, blamed the economy, the credit freeze and “changes underway” in the mobile phone unit for the breakup delay. Analysts have been critical of the costly breakup plan, seeing it as a distraction that failed to address the underlying problems at the world’s third-largest phone maker.

On a conference call with analysts after earnings were announced, Jha said the company would cut the total number of phones models it produces next year and focus less on its own mobile operating system in favor of systems developed by other companies, including Google’s (GOOG) Android and Microsoft’s (MSFT) Windows Mobile.

Some analysts who have been critical of the company welcomed the new plan.

“Sanjay nailed it,” said Ed Snyder, an analyst with Charter Equity Research. “It was a perfect description of the big problems facing the handset business and an intelligent plan for fixing them. Unfortunately it will be painful.”

By Scott Moritz

With touchscreen phones all the rage, and U.S. telcos following AT&T’s (T) lead of cutting the price of Apple’s (AAPL) iPhone, it would seem Nokia (NOK) will be left out of the smartphone party this year.

The Finnish phone giant won’t have its closely-watched 5800 phone – Nokia’s music-loaded take on the iPhone – available here until sometime in the first half of next year, according to people familiar with the phone. Nokia wasn’t immediately available for comment.

And even when it arrives, Nokia has lacked a big U.S. phone partner that would provide the subsidy necessary to put it under the $200 range. At full price, it will have a hard time making a big splash.

“You could look at it as having a 100% upside,” says Nielson IAG analyst Roger Entner, referring to Nokia’s measly share of the U.S. market. Make that a potential upside of 95.5% since Nokia’s slice of the U.S. market has now fallen a percentage point from year-ago levels to 4.5%.

These numbers were part of Nokia’s overall solid third-quarter performance reported Thursday. Nokia posted an adjusted profit of 44 cents a share, down from the 55 cents it netted last year, but in line with analysts estimates. Sales fell 5% to $16.4 billion from $17.3 billion in the year-ago quarter and below the $17.2 billion street estimate.

After hitting a new four-year low, Nokia shares rebounded a bit Thursday up 4% as investors took some confidence from the fact that it met estimates.

As Nokia predicted, its worldwide market share fell to 38% in the third quarter from 40% in the prior period. The decline, according to Nokia, reflects the company’s unwillingness to cut phone prices amid a heated price war in some regions.

Nokia has managed to grab and hold onto the No.1 phone supplier position by honing its skills at making low- and medium-priced phones for a global audience. This focus on the mainstream has caused Nokia to be consistently late to fashion trends like flip phones, ultrathin designs and now touchscreens.

After a strong start in the smartphone wars with over half the global market in 2007, Nokia has dropped to a 35% slice in the third quarter from 48% of the market in the second quarter, according to Morgan Stanley analyst Jim Dawson. The alarming sequential drop is a reflection of how strong rivals like Apple and Research in Motion (RIMM) have grown. The smartphone market will get a new challenger later this month with the arrival of Google’s (GOOG) Android-powered G1 phone at T-Mobile.

But while 2008 is not going to be a big year here for Nokia, the trends – aside from the slumping global economy – are promising overall.

Each player comes from with a different specialty to the smartphone market, says Entner. Apple and Google aim for a strong Internet experience and RIM’s BlackBerry Storm hopes to capitalizes on its successful e-mail background with a touchscreen design. “Nokia comes from a mobile phone approach,” says Entner.

“Nokia sees the phone as an integrated device.” says Entner. In the past three years, Nokia has acquired mobile e-mail shop Intellisync, GPS mapper Navteq and digital media delivery system Loudeye in an effort to control the delivery of services like e-mail, navigation, photography, music, videos, games and the Internet. 

Of course, all this will matter more in the U.S. when Nokia can deliver the device.

By Scott Moritz

Recessions are supposed to be boom times for yard sales and flea markets, so what’s eating eBay (EBAY), the world’s largest bargain bazaar?

Ebay shares hit a new five-year low Thursday as yet another analyst weighed in on the nagging deterioration of the auction giant’s business. Morgan Stanley analyst David Joseph downgraded eBay to neutral, pointing out that there are some troubling trends contributing to the company’s drooping e-commerce market share.

With fears that the credit crisis could throw the economy into a tailspin, Wall Street has been in a bit of a selling mood of late. When analysts point to signs of strain at eBay, investors don’t seem inclined to wait and see.

Foremost among eBay’s challenges, Joseph writes, is buyers’ shifting preference in favor of easy shopping, and away from the auction format. People like features like free delivery, shopping various selections within categories, and conveniences like one-click checkout. As the go-between agent in a transaction, eBay has limited control over these features.

As the analyst notes: Ebay is at a disadvantage in its “ability to compete in buyer experience.”

Given the changing tastes among shoppers, it’s not too surprising that eBay’s market share has dropped to 17% from 19% in the past two years. It’s also not shocking that Amazon’s slice of the business has grown to 5.3% from 3.7% in the same period, according to Morgan Stanley.

Other competitors have edged in as well. Local online swap shop specialist Craiglists has its fans. And while far from a runaway success, net giant Google’s (GOOG) Google Checkout purchasing system is an alternative to eBay’s PayPal service.

The weakening economy is having an impact on eBay also. Analysts point out that people are buying fewer items and at lower prices. So with less big ticket sales to add to the total tally, the overall average selling price is falling. And with the slowing sales volume in September, particularly in the U.S., eBay’s growth rate is “under pressure,” according to a Merrill Lynch report Tuesday.

To be sure, eBay has a solid position globally as the marketplace where sellers of cheap goods meet hunters of good bargains. And as a company, eBay is an upstanding financial citizen, with zero debt, $3.7 billion cash in hand, and a cash flow generation rate of $3 billion annually.

But as we saw this week with Monday’s 9% drop in the Nasdaq, even solid favorites in tech like Google, Apple (AAPL) and Research in Motion (RIMM) get trampled when people stampede for the exits.

Worries about eBay’s slowing growth and shifting consumer preferences certainly don’t encourage the highest bids in a market prone to panic.

By Scott Moritz

Three of tech investors’ favorite horses - Google (GOOG), Research in Motion (RIMM) and Apple (AAPL) - which led the stampede out of the Nasdaq Monday, came rushing back a bit Tuesday.

Panic sellers who sent the Nasdaq down 9%, its steepest one-day drop since the Internet bubble burst in 2000, were replaced by bargain hunters Tuesday. In mid-day trading Google shares were up 8% and RIM’s stock bounced 10%. Apple was up 5%, while the Nasdaq as a whole rose 3%.

Apple was one of the biggest losers Monday, falling18% after two analysts downgraded the stock on fears that Mac sales were going the way of the rest of the PC market. FORTUNE’s Philip Elmer-Dewitt, however, pointed out that some of the gloomy predictions were based on a survey of business IT buyers, not quite Apple’s core market.

Other analysts came to Apple’s defense Tuesday. Goldman Sachs’ David Bailey reiterated his buy rating  saying the stock was oversold.

“We think yesterday’s 18% decline more than captures the concerns over Mac growth in a weakening spending environment, making Apple shares attractive at current levels,” Bailey wrote.

Monday’s broad selloff, and in particular the Nasdaq’s plunge, kicked into high gear after lawmakers failed to pass a Wall Street bailout bill. Amid fears that the current credit crunch could push the economy into a deep recession, not even the tech sector’s lack of debt and strong cash position were enough to keep panicky investors from bailing.

Tuesday’s rebound offered some solace, but as Monday’s collapse showed, tech is along for Wall Street’s ride, like it or not.

By Scott Moritz

Apple (AAPL) got hit with a pair of downgrades Monday as analysts see a weaker consumer taking a big bite out of the computer-maker’s growth rate.

RBC and Morgan Stanley analysts slapped Apple with neutral ratings, down from buy, on concerns that the slumping economy will put a chill on sales of Mac notebooks and desktop computers.

Citing a IQ/Changewave survey, RBC noted that 40% of consumers questioned said they “plan on spending less on electronics in the next 90 days,” RBC analyst Mike Abramsky wrote in the note. This is the weakest outlook ever measured in these surveys, Abramsky wrote.

Apple shares fell 16% in morning trading Monday in the wake of the reports, as investors get a sobering view of how popular consumer devices can lose momentum in a faltering economy.

The growing credit crisis has helped deflate consumer confidence and force delays in purchases of items like new computers and flat-screen TVs. The problem for Apple, writes Kathryn Huberty in a downgrade of Apple to neutral Monday, is that not only is PC sales growth slowing but the one area shrinking less is the under-$1,000 price range where Apple is absent.

Add the slowdown in PC sales to the higher costs of iPhone production, and Huberty says there will be a dramatic drop in Apple’s profit growth. Huberty cut her Apple earnings growth projection for the year to 6%, well below the 9% analysts’ consensus average.

Apple is not recession proof, RBC’s Abramsky writes.

Not surprisingly, investors have taken flight from stocks in some of the stronger players as the market jitters spread across nearly all sectors. Apple shares are down 35% and smartphone rival Research in Motion (RIMM) is down 47% in the past month.

RIM’s disappointing outlook Thursday confirmed that the once hot smartphone segment is cooling just as the larger mobile phone market grinds into slow gear, not just in the U.S., but globally as Nokia (NOK) recently pointed out.

By Scott Moritz

NEW YORK – A brief hands-on experience with the Google (GOOG) G1 phone gives the impression that after a slew of touchscreen duds from other telcos, Apple’s (AAPL) iPhone finally has a worthy rival.

The highly-anticipated HTC phone for T-Mobile (DT) was unveiled in New York Tuesday, and kiosks with technical experts were set up so media people could run the first Android-powered phone through some tricks. T-Mobile will start selling the phone Oct. 22 for $179 with a two-year contract.

The G1 has a large touchscreen, nearly the same size as the iPhone. But unlike the iPhone, there is a physical keyboard under the slide-open screen. People familiar with the iPhone will find the G1 a little lighter and thicker. The G1, for you ultra-thin fans, is about 3/4 of an inch thick, downright portly compared to the svelte half-inch iPhone.

Navigating the screen is fairly easy and there are several ways to move around. The touchscreen has a swipe capability that allows you to flick up and down or side to side. There is also a small trackball-type button at the bottom of the phone for scrolling.

The 3G network coverage at the show – only 16 cities currently have T-Mobile’s 3G networks – was fast. Google’s homepage loaded in five seconds and Google search results also popped up in five seconds. Sites like CNNMoney and Fortune took about 17 seconds to load. That is a fairly standard 3G speed.

Calls worked, and the sound was clear, for those considering the device as a phone primarily.

It is clear, however, that with Google’s support, Android and HTC have made a solid Internet device that combines web access with technology like GPS and software like Google Maps. Applications like Compass Mode, as Fortune’s Philip Elmer-Dewitt explains, gives you a 360-degree street view, a trick that has been limited to PCs until now.

The phone has so-called push e-mail through its Gmail service. As Fortune reported Monday, T-Mobile was considering a low-tier price plan that would give G1 users free e-mail without a data plan. T-Mobile technology chief Cole Brodman says the company looked at a few different pricing plans, but decided that the e-mail only data plan “doesn’t do the device justice.”

The G1 will have two monthly price options, $25 for data plan limited to 400 text messages or $35 for unlimited data. That’s compares with AT&T’s $30 and $45 data plans for the iPhone.

HTC’s touchscreen has some familiar features, like a shifting orientation if the user tips the phone on its side. It also has a zoom-in function that is done with plus and minus buttons on the screen rather than the two finger pinch or separate approach on the iPhone.

The G1 allows dragging and dropping of pictures and text, a feature the iPhone still lacks. The music player was easy to use and there is a direct link to Amazon’s music store.

Overall, and first impressions being what they are,  the G1 stands well above disappointing touchscreens like Verizon’s (VZ) LG Voyager or Sprint’s (S) Samsung Instinct. And until Research in Motion (RIMM) delivers its touchscreen Storm BlackBerry, T-Mobile’s G1 is the toughest competition yet to the iconic iPhone.

By Scott Moritz

Android lands at T-Mobile Tuesday, and as part of the effort to deliver the Google phone to the mobile market, T-Mobile is considering including free e-mail access.

The new Android-powered phone will have Google’s (GOOG) Gmail service built in, and T-Mobile executives are considering offering access to Gmail free, without the need for a data plan, says one person close to the discussions.

The HTC-manufactured T-Mobile phone will be the first of the hotly-anticipated Android-operated handsets, and one of several new challengers to Apple’s (AAPL) iPhone. The Android project was created by Google to cultivate an open application platform to operate next-generation mobile phones.  T-Mobile  – a unit of Deutshe Telekom (DT) - is expected to unveil the phone during a press conference at 10:30 ET Tuesday, and offer it for sale later this fall.

Analysts see the Google phone as the beginning of an important lead in mobile Internet advertising through ads appearing on Android powered phones. Sandeep Aggarwal, an analyst with Collins Stewart, estimates that the phone will generate $5 billion in incremental revenue for Google by 2011.

Should T-Mobile decide to offer free Gmail access, it would be seen as a big counter move to Research in Motion’s (RIMM) BlackBerry e-mail service, which costs $15 a month extra. And if telcos embrace Google’s ad-supported free e-mail, it could help drive Google’s ultimate aim to spread its successful desktop advertising business to mobile phones.

The move to provide free Gmail has risks, however.

T-Mobile could undercut its own data revenue stream from BlackBerry subscribers if users trade in their Curves and Pearls for the Android phone. But T-Mobile, the No.4 wireless shop, needs an attention-getting strategy like free e-mail to help set itself apart from bigger players like AT&T (T), Verizon (VZ) and Sprint (S).  

Google referred calls for comment to T-Mobile and a T-Mobile representative could not provide an immediate comment.

As for the HTC Android phone itself, one user who got an early trial described the slide out keyboard as a little awkward for some typing tasks. The browsing quality however was “better than BlackBerry and close to the iPhone.”

By Michal Lev-Ram

SAN FRANCISCO – CEOs from Sprint, T-Mobile and Verizon Wireless extolled the virtues of open networks -  as long as those networks don’t get too open – Wednesday at the CTIA wireless conference in San Francisco.

The executives took the stage to discuss “openness” -  letting consumers use any mobile device or application over any cellular network. Wireless carriers have traditionally served as gatekeepers to their networks, deciding which applications and even which websites their subscribers  can access.

But that’s all changing. Well, sort of.

T-Mobile (DT) CEO Robert Dotson  told the audience that while the so-called “walled garden” is a thing of the past, carriers need to retain some control to ensure “security and privacy” and provide a reliable experience for consumers.

“There needs to be some stewardship and control,” said Dotson, who argued that a mobile operator can’t guarantee services like voicemail and multimedia messaging will work smoothly when consumers use a phone that’s not optimized for their network.

Sprint (S) CEO Dan Hesse said that in March his company began allowing full Internet browsing, meaning that Sprint subscribers can now look up any website on their mobile browser, even those that aren’t “optimized” for mobile use.

Verizon (VZ) CEO Lowell McAdam also plugged his company’s commitment to openness by pulling out of his pocket two non-Verizon devices (a $69 phone from prepaid service provider AirVoice and a wireless router for the insurance industry) that are currently running on the company’s network. Verizon recently opened its network to outside handsets that meet its minimum testing standards.

Despite vowing their allegiance to openness, all three CEOs echoed claims that truly opening up their networks wouldn’t be all that beneficial to consumers.

McAdam, for example, argued that separating phones from service plans would mean people will have to pay more for cell phones that are now heavily subsidized by carriers in exchange for two-year service contracts.

What’s more, said McAdam, people are accustomed to being able to walk into their carrier’s stores when they have problems with their device. With a more open system, the carrier wouldn’t be involved with the sale of all devices running on their networks, and thus wouldn’t be too keen on helping customers resolve hardware or software issues created by other companies.

“When an application crashes on a Dell laptop you don’t call your cable provider,” said McAdam.

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 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.

By Scott Moritz

In what would be a 3-2 vote split along political party lines, the Federal Communications Commission has finally gotten close to approving the merger between Sirius (SIRI) and rival XM (XMSR).

The swing vote on the deal is Commissioner Deborah Tate, a Republican appointee. Both Reuters and The Wall Street Journal say she is close to filing her vote in favor of the deal.

The two Democrats on the five member commission – Jonathan Adelstein and Michael Copps - have voted no on the combination. Copps Monday gave an unconditional no vote on the deal, and earlier today, 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.

The FCC approval will include a $19 million settlement related to enforcement issues. The fine involves an FCC inquiry into radio violations. XM was forced to pull some radios off the market because the signal transmission crossed over into the airwaves of conventional radio channels.

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 carteofferings 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 Scott Moritz

Delivering its second-quarter earnings Thursday, Nokia (NOK) offered a glimmer of optimism in an otherwise gloomy outlook for the tech market by raising its growth forecast ever so slightly.

Fueled by roaring sales in the rapidly developing so-called BRIC regions – Brazil, Russia, India and China – Nokia adjusted its worldwide mobile phone sales target to 10% or more growth this year from a more squishy “approximately 10%” level.

Nokia posted a 61 percent drop in second-quarter profit from a year ago to $1.75 billion due to 2007 gains on a joint venture. The adjusted second quarter profit was 58 cents per share, up from 43 cents a year ago and above the 56 cents analysts were expecting. Sales were $20.7 billion, up from $16.9 billion in the year-ago quarter and better than the $20 billion Wall Street expected.

The company sold 122 million phones in the second quarter for an average price of $117 each. Analysts had expected about Nokia to sell about 120 million phones at a $120 a piece.

The stock market cheered Nokia’s second quarter results, sending the stock up 7%, as anxiety eased briefly over the waning growth in wireless. Analysts gave the company high marks for delivering solid numbers despite carrying a stale product line up and broadening economic slowdown. If growth continues in theBRIC regions and some of Nokia’s new phones take off, the thinking is that Nokia will come out shining in a year where the rest of tech has been a wreck.

The Finnish phone giant, which holds about 40% of the total wireless phone market, has been able to avoid the economic fallout from the bust of the mortgage boom in Europe largely by pedaling lower-priced phones in hot new wireless markets.

On a conference call with analysts Thursday, Nokia executives pointed to countries like India, where the company had its “best period ever” as new phone buyers were signing up at a rate of seven million a month. The surge in India helped offset a slight cooling in China, where sales fell 16% from the first quarter level.

The executives also said they saw strong competition in the smartphone market in the second quarter. Nokia was caught flatfooted as it had few new phones to compete with Apple’s (AAPL) iPhone or the international expansion of Research in Motion’s (RIMM) BlackBerry. But looking ahead, Nokia says it expects to launch ten new smartphones in the coming months to help revive its high-end lineup. And despite seeing no improvement in Europe and only a one percentage point gain to 5% market share in the United States, Nokia was upbeat about its prospects for the remainder of 2008.

“We have good confidence as we look out here to the end of the year,” CFO Rick Simonson said on the call.

It also doesn’t hurt that Nokia has watched Motorola (MOT), once its top competitor,  hit the rocks.

By Scott Moritz

Some tech shops continue to sink while others swim ahead against the slow-spending current.

Networking and security gearmakers are running strong as businesses build and safeguard their expanding networks, but PC and server sales look to be on the losing end of the ongoing corporate budget squeeze, according to a second-half 2008 spending forecast report by RBC.

Outfits such as Cisco (CSCO) and Juniper (JNPR) stand to benefit from whatever modest gains come along in IT spending. And PC shops such as Hewlett-Packard (HPQ) and Dell (DELL) as well as software giant Microsoft (MSFT) will feel more of the pinch as tight-fisted procurement officers continue to lay off the new computers for awhile more.

RBC analysts surveyed “2,049 leading-edge corporate IT buyers” about their spending plans for the remainder of the year. The results showed that spending will likely remain soft and tied to the overall economy. The good news is that there seems to be no significant decrease in spending ahead, says RBC.

“We should continue to expect difficulty in getting deals signed as companies still appear hesitant to spend on IT products and services: 56% of respondents claim their company has a red/yellow light when it comes to spending on IT, the highest level in over four years.” RBC says in its report Wednesday.

Some bright spots amid the gloom include Research in Motion (RIMM), which RBC expects to gain another 5 percentage points and walk away with 82% of the mobile e-mail business market this year.

And Apple (AAPL) continues to have a hot hand among the corporate crowd, says RBC. Unlike the slide in PC sales, Macs are taking more share in the office. RBC expects Apple to build 3.5 percentage points of overall computer market share in 2008, up from the 2.9-percentage-point gain last year. RBC says Apple will close in on 10% marketshare in business computers this year, up from 7.2% in 2007.

By Scott Moritz

Research in Motion (RIMM) takes the stage this week to preach to a gathering of its faithful in Florida during the Canadian company’s annual Wireless Enterprise Symposium. But just as the BlackBerry maker seems to be reaching the height of success, its flock may well start to stray.

Not only will followers be tempted by new devices like Apple’s (AAPL) forthcoming business-friendly iPhone, other sect members will face excommunication as cost-cutting initiatives sweep through the office ranks.

For now, however, it’s party time for RIM. A few highlights ahead for the week in Orlando include a performance by John Mayer, and even hotter, the unveiling of the company’s first 3G phone, the BlackBerry Bold.

These have been very good times for RIM. European sales have taken off as has the stock, up 81% over the past year, and hovering close to a one year high.

It’s been a good run, but now come a new set of threats.

Due to delays first reported by Fortune, the dazzling BlackBerry Bold will not be available in the United States until as late as August. This means Apple will beat RIM to the market in June with its 3G iPhone.

The hotly anticipated, speedier successor to the original iPhone will also have a deep price cut thanks to a planned subsidy by AT&T (T). The new iPhone is also designed for the sweetspot in smart phones – BlackBerry’s business e-mail niche. Apple says it will license software to allow the iPhone to work with Microsoft’s (MSFT) Exchange platform for office e-mail as well as calendar and contact syncing.

And according to Cisco (CSCO), the iPhone business plan seems to be marching along. On an earnings call with analysts last week, Cisco chief John Chambers said the new iPhone has some of Cisco’s office network security system loaded on. “The upcoming software version 2 for the iPhone incorporates Cisco’s VPN technology,” Chambers said.

Having the networking giant involved with Apple’s business play certainly can’t be comforting to RIM.

Another potentially unsettling development is Nokia’s (NOK) upcoming plan to offer a series of BlackBerry lookalikes through AT&T. The new phones, starting with the E71, will also work with Microsoft Exchange and use a Nokia managed e-mail server, a delivery and security system akin to the BlackBerry approach, says one source familiar with the plan.

BlackBerry fans have seen threats like this before. Good Technology had a popular business e-mail system favored by Palm (PALM) Treo users. Motorola (MOT) acquired Good in 2006, and so far has failed to make much added headway against RIM. If anything, RIM’s one-trick killer-app ability to deliver instant, secure e-mail has been extended beyond professionals to consumers attracted by the sleeker phone designs, GPS navigation, music players and cameras.

On Monday, RIM announced a plan to start a $150 million venture capital fund to spur development of applications on the BlackBerry platform. The move – made along with RBC and Thomson Reuters – is similar to the $100 million venture effort that Kleiner Perkins Caufield & Byers announced in March to develop software for Apple’s iPhone.

A good part of RIM’s success is reflected in the stock’s rise, which has so far defied the slowing economy and sluggish corporate information technology spending. But the new product delay coupled with arrival of Apple and Nokia’s BlackBerry killers, may challenge RIM’s perennial winner status.

To be sure, a lot can be made of BlackBerry’s huge sales opportunities overseas where RIM has a very good chance of repeating the business e-mail success it had in the United States. And some RIM analysts see some big promise in the a crop of new BlackBerries coming out in the coming months.

TD Newcrest analyst Chris Umiastowski points to two phones in the works that should help restart the BlackBerry sales cycle. One is a flip or clamshell styled phone code-named KickStart that will launch with T-Mobile this fall, Umiastowski wrote in a report. And the long awaited touchscreen answer to the iPhone, which is apparently dubbed Storm, is due out in late fall, he notes.

But there is a different sort of storm on the horizon, in the form of spending pressure. It used to be common practice amoung businesses to hand out BlackBerries to an entire staff of go-getters. But the devices are not cheap, about $200 and up, and the monthly service contracts, and revenue sharing payment to RIM are large numbers on the business expense list. Some companies looking to attack costs have targeted the BlackBerry line item.

Here’s one example: Honeywell (HON) has recently taken its belt tightening efforts in a notch and told employees in some units to prepare to turn in their BlackBerries.

Honeywell, an aerospace and electronics giant, isn’t exactly under the gun in terms of immediate economic pressure – the company increased it profits by 22% last quarter on 10% sales growth. The point being, if the strong players are looking for places to cut the fat, one can imagine how the budget police in industries like banking, airlines, autos might be viewing BlackBerries these days.