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

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 Johan Anderberg

What happens when emerging markets don’t bail you out of a flattening mature market? Ask LM Ericsson, the world’s largest telecommunications equipment maker. Shares in the Swedish tech giant sank more than 10% Tuesday after the company announced that net profits fell 70% from the same quarter last year.

Ericsson’s net income of SEK 1.9 billion ($319 million) for the second quarter was slightly better than expected. Net sales were up two percent to $8.1 billion, but shares fell on lower gross margins and low expectations for the year to come. The company reiterated its murky outlook for 2008: Customers in higher-margin markets such as the United States and Europe aren’t likely to order wireless network upgrades in a weakening global economy. And the company’s growing business in developing countries in Asia and Latin America is unlikely to offset slowing sales.

Last week’s break-even report from handset maker Sony Ericsson didn’t exactly reassure investors either. Ericsson CEO Carl-Henric Svanberg, in a conference call Tuesday morning, said this year will be a “challenging” one for its Sony Corp. (SNE) joint venture.

Tuesday’s drop in Ericsson (ERIC) shares did not erase all of its 20% gain last week after Nokia reported better-than-expected results, offering a glimmer of hope about the telecom market ahead.

There was some good news in Ericsson’s earnings report. Analysts were upbeat about the company’s improved cash flow and ongoing cost-cutting. Ericsson is cutting expenses by $672 million this year, including 4,000 jobs worldwide (and not including an additional 2,000 layoffs Sony Ericsson announced last week.

At the same time, Ericsson is investing more in research and development in the hopes of boosting revenues through patent licensing. “We’re walking a thin line,” Svanberg said. “We plan for a flattish networks market ahead, but also try not to compromise with R&D.”

Svanberg also tried to focus analysts’ attention to Ericsson’s growing market share in mobile networks. “We’re expanding our footprint,” he said, boasting that Ericsson now has 40 percent of both the GSM and 3G markets. “It will be good for us in the long run.”

And despite the slowdown in mature markets, Ericsson is still betting heavily on growth in developing countries. The company continues to roll out networks in India, China, Latin America and all other places where growth is strong. Svanberg said Tuesday that India will become the company’s largest market in the next quarter.

The problem is, Ericsson doesn’t make much money in the emerging markets – yet. More than 42 percent of revenues come from Asia Pacific and Latin America, but most of these projects are turnkey and not nearly as profitable as the upgrading of existing networks. And prices are falling. “The competition is fierce. Everyone wants to be a part of the market,” Svanberg said.

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 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.

By Michal Lev-Ram

Is Motorola really considering getting rid of its cell phone business? Don’t count on it — at least not anytime soon. Despite mounting pressure from activist investor Carl Icahn to sell or spin off the money-losing division, the company still seems convinced it can revive the once high-flying division.

Since January, when it issued a vaguely-worded statement that it would explore “the structural and strategic realignment of its businesses,” Motorola has been been signaling it intends to hold on to the handset unit.

Case in point: At a recent Morgan Stanley technology conference, Motorola (MOT) chief executive Greg Brown said the key to a turnaround will be led by a new and improved lineup of phones.

“At the end of the day, I think that the recovery of that business will be primarily product portfolio led,” Brown said, adding that he is focused on bringing out a wide range of new devices across “different technologies, geographies, price points and tiers.”

Brown also told his audience that he is actively searching for an executive to run the company’s mobile devices business. “We want someone steeped with experience, ideally having some technology familiarity or orientation,” he said.

Brown himself has been running the handset unit since early February. The CEO says he now spends about 80% of his time on the division, which posted a fourth-quarter operating loss of $388 million in January

Some industry insiders say they’re not surprised.

“Their message has consistently been that they were going to fix it themselves,” says Robert Laikin, CEO of cell phone distributor Brightpoint (CELL). “I never thought they were going to sell it.”

Others say Motorola tried selling its mobile devices unit but couldn’t find any takers. According to recent reports, both LG and Sony Ericsson have said they are not interested in buying the cell phone business.

In the meantime, Icahn raised his stake in Motorola to 6.3%, up from 5%. Gearing up for the company’s annual shareholder meeting in May, Icahn is pushing to put four favored executives on the phonemaker’s board, including Keith Meister, who manages the shareholder’s various businesses. Icahn has said his proposed directors will “assist Motorola” in executing the company’s “long over due decision regarding the separation of its mobile devices business.”

Motorola has asked its shareholders to reject Icahn’s nominees. A company spokesperson also said Motorola continues to evaluate its options in regard to the cell phone business.

It’s clear Brown is trying to buy more time to clean up the mess himself. If the company’s mobile division is able to show signs of improvement, that will make it more attractive to potential buyers or partners. Then again, if Brown manages to revive the cell phone unit business himself, why he would want to get sell off his fixer-upper is finally starting to show signs of life again?

Either way, Motorola’s CEO acknowledges it could take into 2009 for the company to get back on track. By then, other phonemakers — including Nokia (NOK), Samsung, Sony Ericsson and LG — could continue to eat away at what’s left of Motorola’s worldwide and U.S. market share. As for Icahn, you can bet he’ll keep agitating.

By Michal Lev-Ram

Last year Samsung overtook Motorola (MOT) as the second-largest phone manufacturer. Now, the flailing Razr-maker risks ceding third place to Sony Ericsson. Ouch.

On Wednesday morning, Motorola released yet another round of disappointing earnings — profit from continuing operations fell to $111 million from the year-ago $523 million, as handset sales plunged 38 percent. Motorola shares quickly fell and were down more than 17 percent by late morning.

In his first earnings report as acting CEO, Motorola’s Greg Brown told analysts that the mobile devices unit “remains challenged.” What’s more, Brown warned it would likely be into 2009 before Motorola has a “robust and competitive portfolio.”

Enter Sony Ericsson, the No. 4 handset manufacturer.

The London-based joint venture between Japan’s Sony (SNE) and Sweden’s Ericsson (ERIC) hasn’t exactly been showing explosive growth, but it has been steadily advancing: Just last week the company announced it had increased its year-over-year handset shipments by 18 percent. And, while Sony Ericsson’s profit declined — fourth quarter 2007 net income was about $541 million, down from $648 million last year — the drop was due mostly to new, lower-priced handsets in its product portfolio.

Bottom line, if Motorola keeps stumbling and Sony Ericsson marches on, their market positions could soon be reversed. “If Motorola doesn’t bring something entirely new by 2009, you will probably see the switch happening by then,” says Ping Zhao, a telecom analyst with Credit Sights.

Sony Ericsson’s global market share stood at 8.8 percent in the third quarter of 2007, according to technology research firm iSuppli. At the same time, Motorola’s market share slid to 12.7 percent (considerably down from its Q4 2006 height of 22.6 percent). If Sony Ericsson’s plan to make an aggressive push into the United States is successful, it will likely snag even more market share from Motorola, especially considering its multimedia device lineup — much of which is not yet available in the United States — is superior.

Sony Ericsson’s new president, Hideki Komiyama, has publicly said his company’s target is to become one of the top three players in the industry. At the Consumer Electronics Show in Las Vegas earlier this month, Komiyama said he plans to introduce the widest range yet of Sony Ericsson phones in the United States this year. “This is the year for the U.S. market,” Komiyama said in an interview on the show floor in early January.

Sony Ericsson’s multimedia phones — mainly its Cybershot camera phones and Walkman music devices — are already popular overseas. But because the company makes GSM devices, it has yet to make a dent in the CDMA-heavy U.S. market. The new phones it plans to introduce later this year will be optimized for U.S. networks. The company also said it plans to launch a music phone campaign this summer and push its Cybershot phones in the 2008 holiday season.

Motorola also unveiled several new multimedia devices at CES — including the video-centric Moto Z10 and the Rokr E8 music phone — but Credit Sight’s Zhao was unimpressed.

“We haven’t seen some brand new ideas out of that company for a while,” says Zhao. “My opinion is that the company will continue to lose market share through 2008 — there’s no new product to drag them out of not losing market share.”