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

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

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 Michal Lev-Ram

As cameras, MP3 players and text messaging become must-haves on cell phones, one startup is bucking the trend by going back to the basics.

Peek, a New York-based company, will soon launch a mobile device that has only one function – e-mail. In other words, the bare-bones gadget doesn’t take pictures, come with flashy graphics or even make calls. Given that you’ll still have to carry a cell phone, who would want to buy it? The so-called “soccer mom” demographic, says Amol Sarva, Peek’s founder and a former Virgin Mobile (VM) executive.

Sarva believe that middle-aged women with kids want to be able to access their e-mail while out and about, but don’t necessarily want all of the other fancy features packed into most smartphones. That’s why the device his company developed doesn’t do anything but e-mail. That’s also why it has soft, rubber keys specially designed for women’s fingernails. (Whether potential buyers will be attracted or turned off by such gender targeting is another matter.)

“The overwhelming temptation is always to add value by adding more features and functions into a device,” says Michael Gartenberg, VP of mobile strategy at research firm Jupiter Media. “But this philosophy of ‘less is more’ could be the correct approach for a more mainstream demographic.”

An estimated 14% of cell phone users access e-mail on their mobile device, according to research firm ComScore M:Metrics. But most of them are corporate employees who already have BlackBerries or other smartphones. Peek is hoping to attract a less tech-savvy crowd – the kind of people who don’t know their IMAP (a way of transferring e-mail from a server to a device) from their POP (another way to do the same thing).

Of course, to reach a more mainstream demographic, the price has to be right. The Peek (which comes in cherry, aqua and grey) will cost $100, with a flat monthly fee of $20. Sarva says the device runs on T-Mobile’s nationwide network, though customers won’t need to deal with the carrier. Even better, they won’t need to sign a contract. Peek will be sold in Target stores nationwide starting in mid-September, and customers will pay for the monthly service by credit card, either online or via the device, directly to Peek.

To start sending and receiving messages on the device, all they’ll need to do is enter their e-mail address and password (you can get up to three accounts on one device, including Gmail, Yahoo mail and AOL).

But will the Peek be a hit? Maybe, though it could be a hard sell for several reasons. Besides the challenge of finding an effective way to get the word out to its non-techie target demographic, Peek could face competition from ever-cheaper smartphones.

Devices like a Motorola’s (MOT) Q or Palm’s (PALM) Centro are now available for under $150, and they do a lot more than send e-mail. But Peek believes its target market doesn’t care about smartphones’ bells and whistles and don’t want to be tied to service contracts.

By Scott Moritz

Texas Instruments (TXN) came up light in its second quarter and guided down for the third quarter.

The Dallas-based semiconductor shop reported adjusted earnings of 44 cents a share, compared to 42 cents a year ago, but the bottom line missed analysts’expectations for 46 cents a share in profit for the second quarter.

Sales were $3.35 billion in the quarter, down from $3.42 billion in a year ago and under the $3.39 billion top line analyts were looking for.

The company said “demand slowed unexpectedly in June” as distributors cut inventory. The company also said the first-quarter slowdown in wireless continued in the second quarter. Texas Instruments is one of the largest suppliers of wireless chips in the world and the top chip supplier to Nokia (NOK).

“We believe this slower demand was due to a mix of reasons, including a weaker economic environment and greater confidence in TI’s ability to deliver products within short lead times,” CEO Rich Templeton said in a press release.

Looking ahead, TI guided third-quarter numbers below Wall Street estimates. The chip giant expects earnings in the range of 41 cents a share to 47 cents a share. The company expects sales in the third quarter to be around $3.26 billion to $3.54 billion. Analysts expected a 51-cent profit on $3.56 billion in the third quarter

On a somewhat positive note, TI says it saw mixed signals in the downturn. “Our orders were up in the quarter and backlog grew, but we are cautious given the demand environment we just experienced. If demand strengthens as quickly as it slowed, we are well-positioned to meet it.”

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

Motorola, the flailing No. 3 mobile phone maker, is dropping like a lead handset in industry rankings.

Skipping the No.4 slot, Motorola (MOT) is set to land at the back of the pack at No. 5, according to second quarter shipment numbers. Motorola shipped between an estimated 22 million and 23 million phones in the second quarter, say industry sources cited in a DigiTimes story Thursday. Those numbers compare with projections for 28.1 million phones shipped by LG and 24 million units from Sony Ericsson. Nokia (NOK) and Samsung are No. 1 and No. 2.

The stunning freefall in sales is happening at a faster clip than many observers expected. In March, Fortune.com reported that if Motorola’s weak sales trends continued, the Schaumburg, Ill.-based tech titan could fall to fourth place by year end.

Without any compelling new phones to followup on the Razr’s success, Motorola has been in free fall the past two years. The once-profitable handset unit, and formerly Motorola’s strongest business, lost half its marketshare since 2006 and plunged into the red. Earlier this year, Motorola announced plans to cut its losses and spin off its phone business. Even a recent headhunting mission to find a new CEO turned somewhat laughable when the targeted Hewlett-Packard executive announced that he was quite happy in his current job.

Motorola is expected to report second quarter results on July 31.

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.

By Michal Lev-Ram

LAS VEGAS — While Apple’s iPhone wants to attract business users, Microsoft is desperately trying to move away from its “all work and no play” image.

On Tuesday the Redmond-based company unveiled an updated version of its mobile operating system that it hopes will make it more attractive to everyday consumers. Among the new “consumer-friendly” features on Windows Mobile 6.1 is easier navigation capabilities, an enhanced Internet Explorer mobile browser that lets users zoom in and out of pages and “threaded” text messages (which means users can keep track of texts to and from a particular contact like a chat conversation, a feature operating systems like the Palm OS have had for years).

Microsoft (MSFT) says it is determined to become the operating system of choice for both work and play. Its new Windows Mobile takes a few steps in the right direction, but it will take a lot more than a handful of minor upgrades for the company to change its all-business image. Unlike Apple’s (AAPL) iPhone, which is known as a consumer and entertainment-driven device, Windows Mobile phones have traditionally been geared for the corporate world.

Speaking at the CTIA wireless trade show in Las Vegas on Tuesday, Robert Bach, president of Microsoft’s entertainment and devices division, said he thinks that the company’s reputation as a “mobile solution for people at work” is changing.

The software giant’s Windows Mobile platform already powers a variety of smartphones like the Motorola (MOT) Q and Samsung’s Blackjack, and is on track to sell 20 million devices running on its operating system this year, according to the company. But using most of these phones feels more like using a mini version of Windows on a PC than playing around with an iPhone, the new poster child for consumer-centric cell phones.

Microsoft is making some headway into the non-business market, though it’s unclear whether this is a direct result of changes to its own software.

For the first time, music-phone maker Sony Ericsson is coming out with a Windows Mobile device. The new Sony phone has a much slicker look and feel than most Microsoft devices, but that’s because its Xperia X1 has a software “layer” that runs on top of Windows Mobile and allows for nine customizable panels to appear on the home screen, similar to the small icons on the iPhone interface. The upcoming smartphone, which won’t be in stores until the second half of 2008, is also a touchscreen device — a category that has been a big hit among consumers since Apple’s iPhone came out last year.

Microsoft is making other advances on the consumer front. The company recently bought Palo Alto, Calif.-based Danger, maker of the consumer-friendly Sidekick, which is sold by T-Mobile. But it’s not yet clear how the acquisition will play into Microsoft’s overall mobile strategy.

Of course, Apple has its own challenges convincing IT managers that its device is secure and practical enough for the corporate world. Which raises the question: Can one phone be all things to all people?

Microsoft seems to think so. Unlike Apple, its operating system runs on a variety of phones made by a variety of manufacturers, though currently most of these phones fit into the same business category. If the company wants to become all things to all users — if that’s even possible — than it will likely take more than new zooming features on its mobile Internet browser.