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

AT&T (T) laid out the case for a subsidy that would lower the price for consumers to buy the next iteration of Apple’s (AAPL) iPhone.

Speaking to Reuters at a tech conference in New York Thursday, AT&T CFO Rick Lindner acknowledged that the phone has not yet been unveiled and neither has the pricing. But speaking more generally, Lindner said subsidies or promotional discounts on phone prices are a common element even in smartphone sales like Research in Motion’s (RIMM) BlackBerry phones.

The buzz is growing ahead of Apple’s debut of the sleeker 3G iPhone, expected during the company’s worldwide developers conference starting June 9. The iPhone is expected to go on sale on the anniversary of the original iPhone introduction on the last weekend of June. As Fortune first reported, AT&T - the exclusive U.S. iPhone carrier - has plans to sell the new iPhone for about $200 by subsidizing about $200 of the customers’ cost of the phone.

AT&T came a step closer to confirming the move as Lindner discussed the thinking that goes into subsidizing phone purchases to stimulate sales. He cited as an example the BlackBerry Curve that AT&T sells for the “promotional rate of $99,” according to Reuters.

“It comes down to economics, how many units you think you can sell at different price points,” Lindner told Reuters. “That’s how pricing is determined on just about any device.”

As analysts have pointed out, iPhone users tend to spend more than $90 a month on data and voice plans, meaning AT&T can recoup a $200 subsidy in a matter of months. And $200 phones are seen as within reach of a much wider consumer market than the normal $400 price of the original iPhone.

In other words, AT&T’s subsidy could be the juice to make the iPhone a blockbuster seller this year.

By Scott Moritz

AT&T’s (T) 3G network is almost done. Like 73% complete as of today. Nearly totally covered, well except for the 27% that will be finished later this year that is.

Just weeks away from the hotly anticipated launch of Apple’s (AAPL) 3G iPhone, AT&T - the exclusive telco sales partner to Apple in the U.S. - says next month “six remaining markets” will get a 3G network upgrade. The company goes on to say that it has 3G in 275 markets and “by year-end, the AT&T 3G network will be available in nearly 350 markets.”

Don’t be confused, be reassured. If you buy a hot new 3G phone from AT&T, it will certainly zip along at top network speeds as long as you aren’t trying to use it in those markets where it isn’t yet available.

Apple is expected to introduce the sleeker, faster iPhone early next month and start selling the phone by the end of June. AT&T is under the gun to get the entire network up to speed so its coveted iPhone users don’t flood the customer service department with complaints about inadequate 3G connections and broken promises.

By Scott Moritz, writer

Research in Motion (RIMM) dazzled analysts at its Florida investors gathering with discussion of its business plans and a hands-on demonstration of its newest BlackBerry, once called Meteor and now known as Bold.

Analysts and investors came away from the event Monday reassured about the long-range growth prospects for RIM’s brand of e-mailing smartphones. And why not? BlackBerry’s secure, simple and sleek devices have won a favored spot on the belts of millions of hard-charging professionals.

But it is the short-term cost of the growth that gave a few analysts some reason to trim expectations in the wake of the meeting. RIM is expected to spend more on research and development as well as marketing this year as it defends itself against challengers in the smartphone sector.

“Our takeaway from the capital markets day is that RIM is clearly in ‘investment mode’ as management correctly sees a tremendous opportunity to take share from traditional handset vendors,” Morgan Keegan analyst Tavis McCourt wrote in a research note Tuesday.

“This may limit margin expansion near term, but substantial revenue and earnings growth should continue as RIM expands its product line and its marketing initiatives,” McCourt continued.

And though the company didn’t offer a date when Bold would start selling in with AT&T, the presentation materials provided by RIM put meaningful sales in “late summer/fall,” according to Pacific Crest analyst James Faucette.

This is later than the June debut originally expected and it gives Apple’s (AAPL) new 3G iPhone a two-month head start. The iPhone is expected out on June 27, near the anniversary of the original phone’s coming out party.

And as Apple tries to edge iPhone into RIM’s business-users domain, BlackBerry’s room for growth is in the lower-spending consumer crowd, with its Pearl and Curve. To analysts, this means more subscribers but smaller phone bills and therefore less revenue per user, a key measure of smartphone strength.

“The company pointed to faster [average revenue per user] erosion than we have modeled and indicated the possibility that margins may not be quite as strong as we have modeled,” writes Pacific Crest’s Faucette.

The tempered expectations offer a bit of a reality check as RIM enters a challenging second half of the year.

By Michael V. Copeland

The last time Microsoft walked away from a major acquisition was more than a decade ago. It was 1995 and a $2 billion bid to buy financial software company Intuit fell apart under scrutiny from the U.S. Department of Justice. While there are clear differences between Microsoft’s Intuit deal and its failed attempt to buy Yahoo, a look at what happened within Microsoft after the Intuit bid collapsed offers a preview how things might play out now.

Intuit (INTU) makes Quicken, the leading personal financial software program. And before trying to buy Intuit, Microsoft had tried to beat it with its own software program, Microsoft Money. Microsoft (MSFT) launched Money in 1991 as a way to get a bigger chunk of the consumer software business (Microsoft Office was yet to come to market), and specifically to get a piece of computerized banking. Personal finance was one of the tasks that helped drive personal computer sales. Think back: in the pre-Internet era of the early ‘90s, a PC let you write documents, build a spreadsheet, and track your spending - that was about it.

Microsoft Money did not capture the hearts and checkbooks of anyone, and became a perennial also-ran (not unlike Microsoft’s web effort MSN). Quicken captured about 90% of the market, the rest was divided among three or four other players including Microsoft’s Money. By 1994, Microsoft was done playing around. Rather than try to beat Intuit, it would simply buy it. Here’s how it went down according to several former Money folks.

On a morning in October1994 everyone on the Money team received a phone call at around 7 a.m., telling them to be at a work by 8 a.m. No explanations. At 8 a.m. an unmarked bus rolls up to the Microsoft campus, and the money team is told to get in. No explanations. The team is deposited in a drab conference room at a Bellevue, Wash., hotel and told to wait. No explanations. About 45 minutes later Bill Gates walks in and explains that Microsoft is about to announce its intention to buy Intuit, and answers a few questions. The Money team waits at the hotel until the market closes.

But Gates and his team knew that there might be anti-competitive flags raised. The weirdest part of whole day was the explanation that not only did Gates want to replace the Money product with Quicken, but to do that Microsoft needed to sell off a new version of Money to Novell and therefore sidestep what were likely be complaints from the Justice Department. So the Money team had to get back to work on a product that Microsoft didn’t really want, to buy a company it did want. (Again, what are you thinking if you are hunkered down at MSN?)

Unlike Yahoo (YHOO), Intuit Chairman Scott Cook agreed to the purchase. (Though according to some on the Money team, it was implied that if had not he and Intuit would face the full Microsoft Death Star fury, that is, they would put everything they had smarts-wise and money-wise in to beating Quicken if he didn’t acquiesce.) It was left to the Department of Justice to raise enough questions that it became obvious to Gates and his team that fighting a protracted battle to buy Intuit might ultimately fail, and in the process kill off whatever audience Microsoft Money had. So Gates bailed on Intuit.

That didn’t mean he bailed on the space, and here is where you are likely to see a similar push post-Yahoo (if it is indeed over). Microsoft took all its focus and much of its money and doubled down on Money. The product improved dramatically. Money 1995 actually found an audience, and all the sudden it was a two-horse race with Intuit. Money grabbed about 35% to 40% of the market, Quicken the rest.

MSN in many ways is like Microsoft Money - it has never been on top. But the culture at Microsoft has always been one of intelligence if not arrogance. It doesn’t matter if MSN isn’t on top, there is a belief that Microsoft’s bench will figure out a way to put it there. “People at Microsoft still believe that they are smarter than everyone else,” says one former Money team member who asked not to be identified. “So just because the current team hasn’t unlocked the door to the Web, doesn’t mean another team won’t. And if they do, they’ll be heroes.”

If the Yahoo deal is indeed dead, you can bet that MSN will get the people and the resources it needs to make a run at Yahoo and in the grander scheme, Google (GOOG). Microsoft has already shown its commitment - $46 billion worth in the Yahoo bid - putting up a real contender in the fight for the web. As with Microsoft Money it’s likely to double, quadruple down it’s own efforts. But as one former Money team member points out, the question is, can Microsoft win or just put up a good fight?

“The epilogue is, as good as we all thought it was, as much progress as we made, Money never became the dominant player,” says Jan Miksovsky, the lead designer on Money 1995 and part of the Money team through 2000. “Intuit remained the market leader and has gotten stronger in other areas. When I look back I was personally gratified to see the Intuit deal fall apart, says Miksovsky, who went on to co-found online calendaring startup Cozi. “But my sense now is that Microsoft would have been in a much stronger position had the deal gone through and they acquired Intuit.”

The question for Microsoft now is, can MSN battle Google with the team and the audience it has or does it remain an also-ran. You will see Microsoft make a move within MSN to catch its competition - it has to. But it needs to be at a pace that will allow the software giant to catch up, and fast.

By Yi-Wyn Yen

Google may be getting cold feet. In a last-ditch effort to avoid a merger with Microsoft, Yahoo said it was considering teaming with Google in a search advertising deal. But some Google executives are now questioning whether that’s a good idea, the Wall Street Journal reported Thursday.

One major hurdle: A Google-Yahoo tieup could face tough scrutiny from regulators in Washington and the European Union. Last month Yahoo (YHOO) ran a two-week test displaying some of Google’s (GOOG) search ads on Yahoo’s homepage. Both Yahoo and Google executives said the experiment went well. The two are reportedly in talks to outsource Google’s search technology in a non-exclusive arrangement.

Spokespeople from both Google and Yahoo declined to comment.

Google may have wedged its way into the mix in order to break up Microsoft (MSFT) and Yahoo. Microsoft CEO Steve Ballmer admitted that Google was a factor when the software giant walked away from its $47.5 billion offer last Saturday. In a letter to Yahoo CEO Jerry Yang, Ballmer said his company would not be willing to deal with the “host of regulatory and legal problems” that it would inevitably inherit if Yahoo partnered with Google.

Last month Microsoft’s general counsel Brad Smith lashed out at the two big Internet sites for partnering even in a limited test. He argued that a Google-Yahoo combo would give Google a 90% share of online search advertising and that “this would make the market far less competitive. It would be fair to say that Microsoft would aggressively lobby against a long-term partnership between Google and Yahoo.

Microsoft was one of Google’s biggest detractors when the search giant said it was going to buy DoubleClick, the top firm in online display advertising. Google got approval from both the Federal Trade Commission and the European Committee to acquire DoubleClick, but the approval took the big G nearly a whole year.

Both the FTC and the European Committee ruled that text-based search advertising and display advertising, which is the preferred way that big brands like to advertise, are two different markets, and therefore the merger was not anticompetitive. But regulators may be more wary if the two biggest players in search want to team up.

“Google has incredible chutzpa,” said Jeffrey Chester, the executive director of the Center for Digital Democracy. The public interest group had opposed Google’s DoubleClick deal because it would give Google an overwhelming lead in online advertising.

Chester said both Microsoft and Google have approached him to support their political message on the Hill. He has not yet endorsed either party, and is waiting for a deal - whether it’s Microsoft and Yahoo or Google and Yahoo - to be announced.

However, Chester said he is wary of a Google-Yahoo tieup. “Whatever happens, we don’t want Google to operate Yahoo out of its back pocket,” Chester said. “Whether or not regulators do something about it, we’ll do something.”

By Scott Moritz, writer

Cisco (CSCO) eased slowdown anxieties slightly by setting its sales target below its long-range forecast, but in line with expectations.

The San Jose networking gearmaker posted better than expected adjusted earnings of 38 cents a share up from 34 cents in the year-ago period. Sales for the quarter were $9.79 billion, up from $8.86 billion last year.

Analysts were looking for pro forma earnings of 36 cents on $9.75 billion in sales, according to Yahoo Finance.

Looking ahead, CEO John Chambers told analysts on an earnings call that he expected sales in the fourth quarter ending in July to grow in the range of 9.5% over year-ago levels. That is in line with the 9.2% year-over-year growth expected by analysts.

Chambers said the company still expects its long term growth to be in the 12% to 17% range, but the current quarter was coming in below that pace due to cautious spending in the United States and Europe.

Chambers called the spending caution and sluggish economy a “relatively short-term challenge going forward.”

In March, Cisco fed slowdown fears with a belt-tightening move, asking managers to limit travel expenses and use accumulated vacation time. Those moves may have help contribute to the 2 cent expectation-beating bottom line performance.

Cisco’s solid results helped send the stock up 2% in after-hours trading Tuesday.

By Scott Moritz

WiMax is facing a now-or-never moment as Sprint (S) and Clearwire (CLWR) try to finalize terms of a multi-player joint venture.

Nearly five months into his job as Sprint chief, Dan Hesse has a chance to set Sprint free from an expensive network buildout commitment, and simultaneously spark the WiMax revolution. Sprint and Clearwire are set to announce the formation of a WiMax joint venture involving Comcast (CMCSA), Time Warner Cable (TWC) and funding from Intel (INTC) and Google (GOOG). The announcement could come as early as 6 a.m. Wednesday, according to one source familiar with the plan. Sprint and Clearwire shares surged 7% Tuesday afternoon on raised expectations of an announcement.

It is also possible that the deal could come later, or never, if the parties can’t ultimately agree on who controls the network. Google, for example, has been a uneasy participant, say people familiar with the company. The other players would like to attach Google’s winning name to this ambitious project, but apparently the Net giant has waffled in recent weeks, backing out at one point, then opting back in.

Those watching the unsteady progress of WiMax can’t be brimming with confidence after watching other tech deals disolve. As Microsoft’s three-month failure to woo Yahoo proved, lots of big egos, some forceful approaches and a weakening economy don’t add up to easy negotiations.

Once heralded as the next big thing in mobile broadband, WiMax was to be the successor to WiFi, an untethered Net connection that would usher in a new generation of mobile devices and portable applications.

There have been a couple bumps along the road to WiMax success however. The development of a national network operating on a unified standard has largely been in the hands of two disappointing tech shops: Sprint and Clearwire. The second setback is that the two largest wireless players, AT&T (T) and Verizon (VZ), are pursuing a different technology, called long term evolution or LTE.

The WiMax move would also help move Sprint further down the split-up path. Hesse, with the urgings of some of Sprint’s bigger investors like Ralph Whitworth of Relational Investors, has been mulling a breakup of the No.3 wireless shop. Among the options is the sale of Nextel’s iDEN network, reported to have caught the interest of former Nextel co-founder Morgan O’Brien who runs a public safety networking venture called Cyren Call.

Another step would be the sale of Sprint’s long-distance business, the Global Markets Group. While some analysts say separating the company’s seemingly core network would be nearly impossible, others argue that Sprint is not in a position to turn down any offers at this point.

But the first piece of the splinter strategy for Sprint is WiMax. Hesse inherited the WiMax business, known as Xohm when he took over the CEO job left by Gary Forsee. Forsee staked the company’s future on the promising mobile wireless broadband technology. But the $5 billion cost to build a WiMax network was too much for Sprint, already beset by massive customer defections stemming from its failed merger with Nextel.

The pairing of Sprint’s spectrum and WiMax technology with Clearwire was proposed last year. Sprint needed to get the costs off its books and Clearwire needed a big partner to help make WiMax happen and lend some financial support.

Intel Capital holds about a 25% stake in Clearwire. Clearwire founder Craig McCaw is the largest single shareholder, with a majority of the outstanding shares.

Comcast and Time Warner Cable have identified wireless broadband as a huge opportunity to deliver services like video and calling to a new generation of mobile devices. Last week Comcast raised $2 billion in a bond sale that analysts say signals the Philly cable giant’s readiness to jump into the WiMax venture.

Intel and Google have high hopes that a new national network would open up a mass market for their products and services.

Without this bold joint venture alliance, WiMax faces a bleak future, as other fourth-generation technologies gain ground. The deal could save WiMax from being another promising yet soon forgotten new next thing.

By Scott Moritz

Yahoo (YHOO) chief Jerry Yang has lost a deal and gained some enemies.

Yes, Microsoft (MSFT) walked away from the proposed blockbuster merger - but no, the new enemy is not Microsoft CEO Steve Ballmer.

Instead, it’s Gordon Crawford of Capital Research Global Investors, a holder of 6% of Yahoo’s shares.

Crawford voiced his extreme disappointment in Yang in press reports, including a piece in Tuesday’s Wall Street Journal taking direct aim at Yang and his hamhanded treatment of the Microsoft offer. “I think he overplayed a weak hand,” Crawford told the Journal.

He’s not alone. Other Yahoo investors have taken issue with the way Yang tried to hardball his way to a higher bid.

“This $37 price was ridiculous,” said one Yahoo investor referring to Yang’s deal-breaking counter offer to Ballmer in Seattle on Saturday. “I would have had no problem taking the thing at $31,” the investor said.

Yang has since protested that the $37 pitch was merely a starting point to get the talks going. But after three months, two rejections and a ad outsourcing pact with rival Google (GOOG), Microsoft’s Ballmer decided to use Yang’s starter as an end to the discussions.

The move puts Yang under the spotlight as big investors and small watched Yahoo’s value shrink - on Monday, the stock closed 15% below its closing price Friday.

“This is a clear example where the management didn’t have the best interest of the shareholders at heart. I think a lot of shareholders would have been very happy to do this deal at $33,” said Jacob Internet Fund manager and Yahoo shareholder Darren Chervitz, in Fortune Techland story Monday.

Another big stakeholder, Bill Miller of Legg Mason, whose firm swung to a $256 million loss in the first quarter on bad bets in Countrywide and Bear Stearns, is also feeling the pressure of having more than a 6% position in Yahoo. Miller told Bloomberg that he’s holding out hope that Microsoft and Yahoo can rekindle the discussions.

“There’s probably a lot of people jumping up and down today,” Miller told Bloomberg.

He expects Microsoft to come back. “If I’m sitting in their shoes, I’ll go away and see what happens,” Miller said . “I can come back and the worst case is, I’ll pay six months more of my free cash flow.”

For Microsoft, while the software giant may have averted overpaying for Yahoo, it hasn’t solved the bigger problem: How to compete with Google for the Internet advertising bounty.

Meanwhile, Yang and Yahoo will have a chance to feel some of the investor blowback at the annual shareholder meeting scheduled for July 3.

Observers such as Fortune’s Go West columnist Adam Lashinsky ask: “What will happen to Yahoo’s board? Will angry shareholders kick out its value-destroying board?”

By Scott Moritz

Comcast (CMCSA) has raised $2 billion through a bond sale as the company explores its wireless broadband options, among other things.

The Philadelphia cable giant was able to increase its planned debt offering of $1.5 billion to $2 billion on strong demand for the note, according to Bloomberg News. The news comes a day after the company posted solid first quarter earnings and said it was still planning to move ahead in wireless data.

On the earnings conference call with analysts, Comcast executives said they would take action to to preserve its credit rating.

“We are going to be very disciplined in our capital structures, and do things that make a lot of sense,” Comcast executives said Thursday.

As of March 31, Comcast’s total debt was $37.4 billion, according to a regulatory filing.

Some analysts says the financing move is a good sign that Comcast is getting closer to reaching some sort of agreement on a proposed WiMax joint venture between Sprint (S) and Clearwire (CLWR). Other players that have been involved in those discussions include Time Warner Cable (TWC), Intel (INTC) and Google (GOOG).

Comcast has a big role in the fate of a national WiMax network. If the joint venture fails to find enough funding or participants, the so-called 4G wireless technology faces falling behind the long term evolution or LTE technology that AT&T (T) and Verizon Wireless (VZ) have already committed to.