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Tech Industry

Week in review: Tech's belt-tightening

Layoffs and profit warnings ripple through the industry, while technology companies prepare for the presidential transition. Also: iPhone's wins (outside India).

The ailing economy is rippling through the tech arena in the form of layoffs, cutbacks, and consolidation.

Struggling electronics chain Circuit City announced that it has filed for chapter 11 bankruptcy protection, allowing it to hold off creditors while it attempts to restructure its finances. Circuit City on Monday said it has negotiated a commitment for a $1.1 billion debtor-in-possession revolving credit facility to supplement its working capital.

Circuit City announced earlier this month that it would shutter 155 stores and lay off 17 percent of its workforce. The retailer said it will eliminate an additional 700 positions in addition to the reductions resulting from the store closings, bringing the total layoff projection to about 20 percent of its employees.

Meanwhile, Best Buy reduced its fiscal-year earnings forecast, citing fears that consumers will keep their wallets under lock and key during the holiday shopping season. Uncertainty usually scares investors, who pushed Best Buy's shares down a steep 10.85 percent to $21.29 a share in Wednesday morning trading.

Sun Microsystems announced on Friday a restructuring that involves layoffs of 15 percent to 18 percent of its global workforce, affecting up to 6,000 staffers and resulting in a charge of between $500 million and $600 million over the next 12 months, with about $375 million to $450 million coming in the current 2009 fiscal year. The struggling Silicon Valley stalwart plans to bring its software organization into new business groups: Application Platform Software, Systems Platforms, and Cloud Computing & Developer Platforms, with a focus on "boosting open-source momentum and growing new sectors of the market who view technology as a competitive weapon."

Chip equipment maker Applied Materials said it would cut 12 percent of its workforce after posting declining profit numbers and receiving quite a scare from Intel. The company announced that 1,800 jobs will be cut from its ranks by this time next year, which could save it $400 million a year.

A day after receiving downgrades by analysts, Intel issued a fourth-quarter warning, noting that its financial performance will be less than previously forecast. The chip giant is scaling back its forecast as its revenues come in "significantly weaker" than expected across all its market segments and the countries in which it operates. Gross margins, as a result, also received a revised outlook.

The tech media sector seemed particularly hard-hit this week:

  • Current Media, the cable network co-founded by former U.S. Vice President Al Gore, cut about 60 positions, with 30 more to be refilled. That's less of a hard hit than the 20 percent cuts that a source close to Current hinted to CNET earlier.
  • Blogging-software developer Six Apart laid off about 8 percent of its 200-plus staff. The company is also merging its marketing, community, and support groups, and consolidating its Six Apart professional-services group, adding people to the group from other parts of the company.
  •, the Internet arm of stalwart tech magazine Wired, cut its staff by 10 percent, and an unknown number of employees outside of editorial also were laid off, according to sources close to the company.

Playing poli-techs
Perhaps President-elect Barack Obama can get tech's economy back online, but he will have to do it without Google CEO Eric Schmidt. Schmidt took himself out of the running to be the United States' first chief technology officer.

"I love working at Google, and I'm very happy to stay at Google, so the answer is no," Schmidt said Friday when queried on the subject by CNBC host Jim Cramer during an appearance on his television show. Schmidt then quickly changed the subject by steering the conversation toward reports that Microsoft was trying to steal Verizon's search deal from Google.

However, based on the job description, it could be difficult to find a worthy candidate from the private sector willing to take on a task of such enormous scope in an environment known to chew up and spit out White House policy czars. The Obama administration's CTO job could be one of those bureaucratic positions that ends up consumed by turf wars rather than making real progress against initiatives.

Presidential elections may capture the public's attention, as Obama's victory did last week, but the less glamorous work in the U.S. Congress tends to prove more important for technology topics. Whatever the outcome, Democrats are likely to be newly emboldened and may be eager to approve legislation that stalled in the 110th Congress, including spyware regulations and a shield law that would protect some bloggers.

The outlook is complicated by some shuffling in House and Senate committee leadership, which is expected to take place next week. Two politicians are jockeying over chairmanship of the Energy and Commerce Committee, which includes green tech and Internet regulation in its portfolio. And increased interest in intellectual-property issues in the House Judiciary Committee has led John Conyers (D-Mich.) to reorganize a key subcommittee.

Going mobile
Mobile Web usage is on the rise as more fully featured browsers come to market on smartphones, which are designed to handle more sophisticated applications and are growing in popularity. In fact, Apple's iPhone was named the most popular phone during the third quarter of 2008, surpassing sales of Motorola's Razr, according to NPD Group.

A report from ABI Research predicts that the number of smartphones with highly capable mobile browsers will grow from 130 million today to more than 530 million by 2013. There are many reasons consumers are using the mobile Web now more than ever. For one, carriers are offering flat-rate mobile-data plans, which makes subscribing to these services more affordable. New 3G networks are also making accessing the mobile Web much faster.

Meanwhile, the iPhone has half the failure rate of RIM's BlackBerry in the first year of use, a study carried out by a mobile-phone warranty firm has found.

The SquareTrade study looked at more than 15,000 handsets that were covered by the company's policies. It found that iPhones had a malfunction rate of 5.6 percent in the first year, compared to 11.9 percent for Research In Motion's BlackBerry smartphones. Palm's Treos fared even worse, with 16.2 percent having some sort of malfunction in the first 12 months of use.

There is a huge market for mobile phones in India, but according to the locals, the iPhone hasn't even made a dent. Analysts estimate that just 11,000 iPhones have been sold in India since Apple launched in that country in September, which is probably equivalent to a week's worth of sales at the downtown San Francisco Apple store.

It doesn't seem that Apple ever thought it would make a huge splash in India, allocating just 50,000 iPhones to that market. Of the 120 million mobile phones sold in India each year, around 6 million are of the smartphone variety, and Nokia owns the market, with between 60 percent and 70 percent market share.

Web ready for its close-up?
Metro-Goldwyn Mayer Studios, better known as MGM, will be the first major movie studio to post full-length feature films on YouTube. It will also post TV shows on the video-sharing site.

For YouTube parent company Google, the deal is a turning point in its relationship with Hollywood. There was lots of distrust and bitter feelings in entertainment circles after the way Google dealt with copyright infringement on its site.

If YouTube and Hulu are to become Web movie houses, will they be the online equivalents of those gleaming multiplexes where all the latest releases appear? Or will they be the revival houses that screen only outdated flicks?

Some of the studios are easing their way into YouTube and Hulu, the video portal formed by NBC Universal and News Corp., because of doubts over whether ad-supported business models will ever generate the kind of returns the studios see from pay-TV channels, DVD sales, and iTunes, which charges for movie downloads.

One of the hurdles ad-supported movie sites face is that many people don't want to watch two-hour films on a PC; in the case of Hulu, revenue has to be split with the site's distributors--such as Yahoo and AOL; and perhaps most importantly, Web users will click away if asked to watch the same number of commercials online that is shown on traditional TV.

Meanwhile, YouTube is rolling out a new ad platform called Sponsored Videos that lets users promote their videos by bidding on keywords. How it works: First, YouTube users, whether individuals or corporations, decide which of the videos they've uploaded they want to promote through site search. Then they decide which keywords they want to target.

Google has created automated tools that help users place bids for the keywords in an automated online auction, as well as set spending budgets. When people use keywords in search terms for videos, YouTube will display relevant videos alongside the search results.

Also of note
Google unveiled a new site to track the progress of the flu...Google Earth extended its satellite perspective to paint a picture of what the ancient city of Rome looked like nearly two millennia ago...Experts say a single Web-hosting provider may have been responsible for as much as 75 percent of the spam on the Internet.