Smart Phones Gain as Midrange Handsets Suffer

By The Wall Street Journal

Global sales of smart phones continued to rise in the second quarter as customers sought more features for their money, research firm Gartner Inc. said Wednesday.

However, the overall mobile-phone market declined from a year earlier for the third consecutive quarter, though the decline was at a slower pace than in the previous quarter, Gartner said in its quarterly report on the industry.

The rapid downturn in consumer spending has hammered the wider market as customers delay upgrades and hold off buying new phones. Prices of phones have been falling as phone companies and vendors try to stimulate demand. However, sales of smart phones are on the rise as vendors and wireless companies focus on marketing these devices in the hope of making more revenue per device.

Consumers who would usually buy midrange phones are either now purchasing smart phones, which offer features such as email, or are trading down to less-expensive handsets, said Gartner's research director, Carolina Milanesi. "We are seeing a lower revenue opportunity than we did a quarter ago," she said.

Gartner said about 286 million handsets were sold in the three months ended June 30, down 6.1% from a year earlier. That's an improvement on the record 9.4% drop in the first quarter from a year earlier.

Still, similar to a trend seen in the first quarter, sales of smart phones, such as Apple Inc.'s iPhone and Nokia Corp.'s N97 touch-screen handset, rose 27% to 41 million units.

The overall handset market could return to positive growth in volume terms by the fourth quarter, Ms. Milanesi said, helped by improving consumer confidence and new product launches from vendors including Sony Ericsson and Motorola Inc.

The three months ending Dec. 31 "is going to be a very strong quarter; there are a lot of products coming in time for Christmas," she added.

Heavyweight Nokia maintained its leadership position in the second quarter, even though its market share fell to 36.8% from 39.5% in the year-earlier period as it lost ground to Samsung Electronics Co. and LG Electronics Inc.

Samsung's market share increased to 19.3% from 15.2%. LG's market share increased to 10.7% from 8.8%. Motorola's market share fell to 5.6% from 10%.

Sony Ericsson's market share fell to 4.7% from 7.5%. Gartner said the company has suffered from an uncompetitive range of handsets, missing key trends like full keyboards, Internet browsing and navigation.

Brace for bumps in Windows upgrade

By The Wall Street Journal

It's amazing how many people are still using Windows XP.

We need to talk about this because Windows 7 is scheduled for release in late October. In between the two, we've had Micro soft Vista, which has been something less than a success. From the oversold Aero interface, which taxed PC performance for a small payoff in looks, to the misleading "Vista Capable" sticker that implied a computer was ready to go when it could handle only the basic Vista version, the interim operating system has been a frustration all around.

No wonder so many businesses and individuals have continued to run XP while hoping to bypass Vista and go straight to Windows 7. And no wonder Microsoft is hoping for great things from Windows 7 -- its Windows revenues have, for the first time, dropped year over year.

But we XP holdouts are now going to pay the price. For if an upgrade from Vista to Windows 7 is a relatively painless process, the cut-through from XP to Windows 7 is fraught with challenges. It turns out that XP users can't exactly upgrade. What they have to do is back up all their data and run a clean install of Windows 7, thus eliminating their programs, their associated drivers, and anything else they've left on the disk. Good luck finding all those old installation disks when you're hoping to reinstall the programs you use daily.

Windows 7 will wipe out your hard disk data for you during the installation phase, so whatever file folder organization you've established will be eliminated in the process. Transferring your personal data is eased somewhat by Microsoft's "Easy Transfer" program, which can move your information to an external hard disk and restore it to the newly established Windows 7 environment on your PC. Even so, moving data is a chore, and any long-time XP user with a disk stuffed with files will wish for a cleaner way to proceed.

You might think I'm about to trash Windows 7 after having spoken well of it in the past, but I'm actually of two minds about all this. Over the years, I've made it a practice to periodically back up all my data and do a clean Windows install every eighteen months or so. Performance is much snappier when you do such a reset, for reasons that doubtless have to do with mangled registry settings and all the digital detritus that builds up after installing program after program. It's time-consuming, but a clean install offers serious performance benefits if you're confident of your data backups.

Just be aware of what Windows 7 will ask of you if you're currently running XP. If a new computer is on the horizon anytime soon, consider simply waiting until the manufacturers are selling machines with Windows 7 preinstalled. You'll avoid the hassles of the "upgrade" and will have a fair assurance that Windows 7 will have the right drivers for your hardware, something that at present may not be the case for older equipment. And again, if you're running Vista, the regular upgrade process seems to be relatively quick and painless.

Be sure to check your current system to make sure it has the requirements for running Windows 7. A complete list is posted at windows.microsoft.com/systemrequirements , and bear in mind that these are minimums.

Many will wait and see

Meanwhile, the rollout of Windows 7 may not be as easy as Microsoft would like. Two recent reports have noted that about 60 percent of businesses will not buy Windows 7 at launch, while a study from PCMag Digital Network found that 32 percent of consumers will buy Windows 7 in the six months after it becomes available.

Those numbers surprise me a bit because Microsoft is pitching Windows 7 as a cleaned up version of Vista, one in which performance is made paramount and tuneups to the user interface make it easier to use. With the underlying engine being much the same, then, the need to wait for the first service pack release -- many businesses do this when new operating systems appear -- seems to be negated. Judging from the "release candidate" software many reviewers have seen, Windows 7 is already robust and a significant improvement over Vista.

Things would have run so much better if the transition from XP to Vista had been seamless, but Vista's problems have kept millions using the older system, and that has complicated the Windows 7 picture immeasurably. So have the legions of netbooks still being sold with XP as their primary system. Having skipped Vista on my main machine, I'll do the "clean install" from XP whenever possible, looking forward to a new operating system while remaining dismayed at how exasperating Microsoft system upgrades always turn out to be.

H-P's Profit Sapped by PC, Printer Declines

By The Wall Street Journal

Hewlett-Packard Co. posted a 19% drop in quarterly profit as sales fell sharply in several of its key businesses, but the technology giant said it was seeing a "stabilized market" and suggested that technology spending has hit bottom.

The computer, monitor and printer maker produced earnings of $1.64 billion, or 67 cents a share, for the quarter ended July 31, down from $2.03 billion, or 80 cents a share, a year ago.

H-P's quarterly revenue fell 2% to $27.45 billion from $28.03 billion a year earlier, despite several billion dollars in additional revenue from tech-services company Electronic Data Systems, which H-P acquired last year.

Still, the Palo Alto, Calif., company beat the quarterly forecasts it gave Wall Street in May and H-P reaffirmed its financial guidance from earlier this year.

What's driving revenue is a stabilized market in the United States and Asia Pacific.

H-P shares declined 2% in after-hours trading to $43.07 after ending 4 p.m. trading on the New York Stock Exchange at $43.96, up 85 cents.

While H-P's overall results showed some weakness, sales of PCs and used computers have begun to pick up with the back to school push.

The quarter was H-P's second consecutive period of declining revenue, as reduced corporate spending and falling PC prices slammed the entire tech sector.

Since Chief Executive Mark Hurd took over the company in 2005, H-P has slashed costs and steadily increased its profits, growing to be the world's largest tech company by revenue and beating out PC competitors.

But since last year, the recession has hurt the company's growth. In the latest quarter, revenue declined across almost all of H-P's businesses.

The company, which is the world's largest manufacturer of PCs, reported PC revenue of $8.43 billion for the quarter, down 18% from last year, despite 2% growth in shipments. Operating profit in the PC division fell 34% as computer prices plummeted.

Pricing pressures are also weighing on H-P's biggest rival, Dell Inc., which is set to report quarterly results Aug. 27. Wall Street is expecting Dell's revenue to decline more than 20% in the quarter.

Revenue in H-P's servers and storage division, which sells back-office computing equipment to businesses, fell 23% to $3.66 billion.

Meanwhile, H-P's printer unit saw revenue decline 20% to $5.66 billion as customers cut back on ink and printing supplies.

In H-P's software unit, operating profit rose 13%, despite a 22% revenue decline to $847 million.

H-P is cutting 24,600 jobs as part of the EDS deal, and in May announced a separate round of 6,400 job cuts.

Apple boosts its system's speed

Story by The Wall Street Journal

Snow Leopard OS scheduled for release in September.

Apple Inc.'s new operating system, dubbed Snow Leopard, is designed to mimic one of the big cat's prominent characteristics: speed.

Scheduled for release in September, Snow Leopard is expected to be the fastest operating system to date from the Cupertino, Calif., company.

Macintosh computers and used Apple laptops running Snow Leopard will shut down as much as 75% faster than those running Leopard, the current Macintosh operating system, according to Apple's Web site. Computers and used Apple laptops running the software also will wake from the low-power sleep mode twice as fast as those running Leopard. The system is as much as 55% faster at joining wireless networks.

Snow Leopard's sprint to stores and the Internet will come as Apple positions its well-regarded operating system for a challenge to Microsoft Corp., which is preparing the latest version of its ubiquitous Windows operating system. That program, Windows 7, is getting strong reviews, though questions remain as to how quickly it will be adopted. Many viewed its predecessor, Windows Vista, as a miss with businesses and consumers.

Windows 7 is to be launched Oct. 22. Hearing positive feedback from consumers, enterprises, reviewers and industry experts that confirms Windows 7 is on track to deliver what our customers have been asking for in a new operating system. Operating systems control the key functions of computers.

Apple's Snow Leopard has about 100 major come-hither features or refinements. The operating system will push the boundaries of what can be done with track pads, the part of a laptop's console used to control the on-screen cursor. With Snow Leopard, any Macintosh notebook computer or used Apple laptop with multitouch track pads will support three- and four-finger gestures, as they are known in the computer industry.

Gestures include swiping three fingers together either left or right to advance through a series of downloaded Web pages. Four fingers swept upward on the track pad clean a crowded desktop.

Snow Leopard isn't particularly pricey. It will cost $29 to upgrade a Mac to Snow Leopard from Leopard, and $49 for five computer upgrades within the same family. The software also will ship with every new Mac.

Because of the low price tag, Snow Leopard won't directly contribute much to Apple's top line. Apple is counting on Snow Leopard to entice people to buy more of its computers, especially its laptops.

Those machines have relatively large profit margins that have helped propel Apple's profit and stock price. The shares have risen 91% this year. The stock fell 1.1% to $162.83 on the Nasdaq Stock Market at 4 p.m. Tuesday.

Snow Leopard puts Apple in pole position to capture market share for notebook computers and used Apple laptops.

Back-To-School Sales Critical For Chip Makers, Investors

Story by The Wall Street Journal

Chip makers, and investors, have a lot riding on backpacks this fall being filled with new laptops, refurbished computers, smartphones and music players.


This year, perhaps more than others, a strong back-to-school shopping season will be critical for semiconductor makers hoping that early signs of a stabilizing market will continue through the second half of 2009. With business spending on tech still weak, consumer spending - which fell steeply late last year - takes on added importance.

If consumers don't show, semiconductor stocks could reverse recent gains in the second half, and chip makers may find themselves with the problem of high inventory levels again as customers slash orders.
A lot of hopes are being rested on a strong back-to-school and holiday season. It's more pivotal than ever. Another option for back to school computer shoppers are refurbished computers. Refurbished computers offer great value with top quality performance and name brand support. Many times refurbished computers include extended warranties from the top computer manufacturers.

Those hopes are reflected by the gains in the chip makers' stock prices. The Philadelphia Semiconductor Index, or SOX, is up nearly 40% since the beginning of this year, well above the broader Standard & Poor's 500 and tech-heavy Nasdaq Composite, and the index advanced above 300 in late July for the first time since early October.

The surge reflects two investor perceptions: that supply and demand for chips have come back into realignment, and that gadget manufacturers will begin buying more chips in preparation for higher spending on tech products in the back-to-school and holiday shopping seasons.

Quarterly results from chip makers over the past month suggest a return to normal buying patterns from tech manufacturers. While overall revenue is down for chip makers, the traditional seasonal pattern - chip sales building over the course of the year with the bulk of sales occurring in the second half - is emerging following last year's sharp drop-off in the fourth quarter that sent stocks reeling.

For example, both Intel Corp. (INTC) and Texas Instruments Inc. (TXN) posted sequential revenue growth in the second quarter and predicted more of the same in the third quarter. While net income and revenue remain well below last year's levels across the chip sector, the demand patterns suggest that the periods of massive inventory corrections suffered early in the recession have passed.

Meanwhile, a slight drop in the unemployment rate in July also provided hope that the economy is beginning to recover, and that consumers might be able to spend through the second half of the year.

Still, some analysts say the run-up in chips has already accounted for that recovery, meaning stocks would likely stay flat on good news - limiting any gains - while any stumbles on the road to recovery could have investors taking profits and scurrying for safety.

Semiconductor stocks are entering the second half priced optimistically; however, recently, that has led to disappointing finishes. Beginning with 2000, the Philadelphia Semiconductor Index has risen in the second half only three times - 2003, 2005 and 2006. The other six years, the index registered double-digit declines over the final six months.

Averting that fate hangs on the strength of the consumer market, as businesses still cutting costs amid the recession continue to put off tech purchases. Last month, Intel Chief Financial Officer Stacy Smith noted the continued weakness in those segments and said business spending likely won't recover this year.

If that's the case, Intel's better-than-expected outlook for the third quarter, seen as a bellwether for the industry, will rely heavily on the consumer.

Retailers like Best Buy Co. (BBY) and computer makers Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL) will offer the earliest evidence for the strength of the back-to-school season. H-P, the world's largest computer maker, reports third-quarter results Aug. 18, followed by Dell Aug. 27. Best Buy reports its second quarter in September.

Before shopping for back-to-school notebooks and laptops, check out DFSDriect.com for great back to school laptop deals and back to school notebook deals. DFSDirect is your leading source for name brand refurbished laptops and notebooks.

New FCC chairman sees broadband as priority

The new head of the Federal Communications Commission wants affordable broadband access for all Americans, according to an article in Monday's Wall Street Journal.

Julius Genachowski sat down with the Journal for one of his first interviews since being sworn in as FCC chairman in late June and said that making affordable high-speed Internet available throughout the nation could be the "most successful driver of economic growth" in the nation.

Exactly, how he plans to do this is something that broadband providers, such as AT&T, Verizon Communications, and Comcast, are watching carefully. The new chairman has not been vocal yet about how he stands on many issues that will affect these companies.

Some issues that are currently under discussion at the FCC include new rules that dictate how broadband providers manage their networks. Comcast got into trouble last year for slowing down its customers' peer-to-peer Bit Torrent traffic without providing sufficient notice. Consumer groups have been advocating for stronger rules or regulation that prohibit such types of changes.

There are also discussions before the FCC about rules requiring companies to lease network space to competitors. Broadband providers have argued that imposing strict, new rules could stifle innovation and investment.

The FCC has also been looking at exclusivity deals that wireless phone providers have been striking with mobile handset makers. These deals include AT&T's exclusive contract with Apple to offer the iPhone on its network, and Sprint Nextel's exclusive arrangement to carry the Palm Pre. Some lawmakers and consumer groups say it is unfair for carriers to strike these deals because it keeps cutting-edge products out of the hands of consumers who do not live in regions where these services are offered.

In an effort to fend off criticism, Verizon Wireless, the largest wireless carrier in the U.S., said last week it will allow smaller, regional carriers to get access to its exclusive phones after six months.

There are also a slew of other issues that the FCC must deal with soon, including whether to overhaul the Universal Service Fund, which subsidizes phone service for rural Americans. Phone companies have complained for years that the system is broken. And others have urged the FCC to reallocate some of the funds collected for USF for subsidizing broadband services.

It will be interesting to see which side Genachowski will take on these issues. Generally speaking, many people perceived former chairman Kevin Martin as often siding with the phone companies, while having a more contentious relationship with cable companies. Specifically, the former chairman's campaign to force cable companies to offer a la carte pricing for cable TV put him squarely at odds with that industry.

Cellphone Users in U.S., Canada, Spain Pay Most

Story by The Wall Street Journal

Consumers in the U.S., Canada and Spain have among the highest mobile phone bills in the world, according to an OECD report, which also reveals that people are increasingly ditching land lines in favor of using only cellphones.

The new report by the Organization for Economic Cooperation and Development, which surveyed its 30 member countries, says that revenue for business voip services and mobile-phones is on the rise, despite the global recession.

Mobile phones are steadily becoming cheaper to use, and service is more readily available. Still, there are glaring differences in prices and usage around the world. In Europe, mobile phone service is generally cheaper than in the U.S. Users in northern Europe, especially Denmark, Finland, Sweden and the Netherlands, pay the least for their mobile phones, and are therefore increasingly substituting their land lines with cellphones.

One of the reasons Canada and the U.S. are such expensive markets for mobile users is that, unlike in Europe, consumers in North America often pay to receive calls.

One European country that bucks the low-price trend is Spain. Buying a phone or a SIM card aren't particularly pricey, but usage is very expensive.

It is very difficult to compare the different types of plans in different countries.

Mexico, one of the fastest-growing mobile markets in the countries surveyed, still has the second-lowest mobile market penetration rate on the list. Slightly more than 60 out of every 100 people in Mexico own a cellphone. The lowest mobile-phone penetration of any OECD country is Canada.

Italy is the country where the most mobile phones are used, with 150 mobile subscribers for every 100 residents. People have multiple accounts, multiple SIM cards, and multiple phones.

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