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Week in review: Bad news market bears

Tech gets battered on the stock market, but not Microsoft, which seems recession-proof. Also: Wireless goes to Washington.

Steven Musil Night Editor / News
Steven Musil is the night news editor at CNET News. He's been hooked on tech since learning BASIC in the late '70s. When not cleaning up after his daughter and son, Steven can be found pedaling around the San Francisco Bay Area. Before joining CNET in 2000, Steven spent 10 years at various Bay Area newspapers.
Expertise I have more than 30 years' experience in journalism in the heart of the Silicon Valley.
Steven Musil
6 min read
Financial markets around the world went on a wild ride this week, and tech stocks were not immune to the nausea.

The Dow had back-to-back trading sessions with 600-point swings, and the Federal Reserve stepped in to try to calm markets with a 0.75 percentage point reduction in its key short-term federal funds rate--the largest single-day interest rate cut. Markets seemed to stabilize, but not before several companies gave up a healthy chunk of market capitalization.

Among the more prominent tech stocks, Apple chimed in with strong results for its first quarter, thanks to the strength of its Mac business. The company reported revenue that exceeded analyst expectations. Mac sales were up 44 percent compared with last year, but iPod sales weren't as strong as expected--22.1 million in sales versus Wall Street expectations of 24.7 million--and Apple's guidance disappointed investors, who sent the stock down more than 15 percent before it settled at down 10 percent.

Also, there's a numbers gap that seems to suggest that demand for the iPhone in America may be starting to wane. AT&T, the exclusive American carrier of the iPhone, activated just 900,000 iPhones during the fourth quarter, and wrapped up the year with "just at or slightly under 2 million iPhone customers."

However, Apple announced at Macworld that it has sold 4 million iPhones through the middle of January. The discrepancy is leading some to suspect that Apple might have a demand problem.

In the past month, Apple's stock price has declined from more than $200 a share to about $136, leading some CNET News.com readers to declare they see the end of Apple's glory days, while others prophesied hard times ahead for the tech industry as a whole.

"If the market thinks (steadily growing, cash-rich and debt-free) Apple should be downgraded, what will they think about the others?" wrote one reader to the News.com TalkBack forum. "Especially those with major problems like Sprint, Motorola, Palm. 2008 looks bloody for tech stocks."

Speaking of Motorola, there's another company that appears to be in peril. Once the second-largest handset maker in the world, the company's stock dropped more than 22 percent, to $9.55, in midday trading, after it reported an 84 percent decline in fourth-quarter profit, due mostly to sharp declines in its handset business. The company's newly appointed CEO, Greg Brown, further spooked investors by saying during the conference call with analysts and investors that a turnaround of the handset division "will take longer than expected."

eBay reported Wednesday that fourth-quarter profits rose 53 percent from a year earlier to $531 million, and revenue increased 27 percent to $2.18 billion. However, the stock dropped about 6 percent in after-hours trading to $27.15 after eBay warned that revenue in the current quarter and for the full year would be below analyst estimates.

While auctions represent the majority of eBay's revenue, growth was led by other units, including PayPal, online ticketing site StubHub, Internet phone company Skype, classifieds, and advertising.

The warning came as eBay announced that Meg Whitman would step down as chief executive of eBay after a decade at the helm, allowing a trusted insider, John Donahoe, head of eBay Marketplaces, to respond to slowed growth at the online auction pioneer.

Redmond: Recession, what recession?
Of course, not everyone is hurting. One of the standouts is Microsoft, which reported earnings well above the high end of what analysts had been expecting. Microsoft also increased guidance on the current quarter and fiscal year. Investors were understandably pleased with the report, sending the stock up 4 percent in after-hours trading.

While many businesspeople are worrying about a possible recession, Microsoft says it sees its part in the economy remaining strong.

Colleen Healy, Microsoft's general manager of investor relations, said that the company booked a greater amount of future revenue than it had expected, taking in about $500 million more than planned in its "unearned revenue" column. Healy said some of the bookings appear to be early indications of demand for its coming server and tools products, including Windows Server 2008.

"From our perspective, we are expecting IT spending to remain stable," said Healy. "Software, in particular, remains healthy, and our ability to capture IT budgets looks good."

Microsoft also said that it has released another updated test version of Windows Vista Service Pack 1. The company said that the new version, dubbed "Windows Vista SP1 RC Refresh 2," has been released to about 15,000 beta testers. The code is not being made available publicly, Microsoft said.

Wireless goes to Washington
A key federal regulator said he's not ready to pursue new rules requiring wireless carriers to open their networks to whatever devices or programs their customers desire. Federal Communications Commission Democrat Michael Copps said he would not "strongly object" to sitting back, for now, and watching how recent "voluntary" promises by wireless carriers pan out.

For instance, ostensibly because of the threat of regulation, Verizon Wireless recently said it would generally start allowing any phone to run on its network, and allow any application to run on those devices, by the end of this year. Other wireless carriers, such as AT&T, have also been playing up their perceived openness as a marketing tactic.

"I hope it is as good as it sounds," Copps told attendees at an event organized by the New America Foundation. "But we have to ask: has the reality shifted quite as much as the rhetoric has shifted?"

Several former FCC chairmen helped launch a national campaign to help educate parents and teachers about the effect of digital media on kids and teens. The campaign, called the Digital Kids Task Force, will develop education programs and technology to help kids learn online, and a research program to study the Web's impact on children.

The task force was unveiled in partnership with former FCC Chairmen Michael Powell, Will Kennard, and Newton Minow.

The group met with Washington, D.C., lawmakers this week to discuss funding for the project. The talks come as the FCC prepares to auction off newly available broadcast airwaves that will allow TV programmers to offer more wireless Web access to the public, including children. Members of the Digital Kids Task Force say that some of that spectrum should be dedicated to educational programming for kids.

Meanwhile, the U.S. Supreme Court declined to weigh a dispute that could affect how taxes show up on Americans' cell phone bills, dealing a setback to wireless companies. The case at hand, which pitted Sprint Nextel and T-Mobile USA against state utility regulators, centers on whether states should be allowed to forbid wireless carriers from breaking out various state and local taxes as line-item fees on a customer's bill.

The wireless companies, naturally, maintain they should be able to establish a visible separation between the base prices of their services and the fees required by various regulators. But state utility regulators have countered that the wireless companies are missing the point: the fees and taxes they impose are generally meant to fall on the wireless carriers themselves, not on consumers.

Also of note
A cyberattack has caused a power blackout in multiple cities outside the United States, the CIA has warned...In a speech at the World Economic Forum in Davos, Switzerland, Bill Gates is calling on companies to think more broadly about how their products can benefit society...A 23-year-old Afghani journalism student is facing a death sentence in his home country for distributing articles allegedly critical of Islam that he had printed from a Web site.