Technology Spot

Sprint Nextel continued to lose valuable contract wireless subscribers in the first quarter of 2011 as it faced stiff competition from Verizon Wireless, which began selling the Apple iPhone in February.

But overall it managed to add customers, mostly from its prepaid and wholesale businesses, while also improving its churn rate and narrowing losses.

Sprint lost 114,000 postpaid, or contract, subscribers during the quarter. It was expected to lose about 40,000 such customers, according to Reuters. Still this was an improvement of about 464,000, or 80 percent, compared to the first quarter of 2010.

Analysts predicted that Sprint would continue to lose postpaid customers during the quarter as Verizon introduced the new iPhone on its network in February.

But the customer losses were not as extreme as some experts had predicted, with Sprint weathering the storm well. But CEO Dan Hesse said during a conference call with analysts and investors this morning that the company did take a hit due to the iPhone.

"Historically, with the iPhone we see a significant impact with the launch of new devices," he said. "And the iPhone continues to be a significant threat to us."

Hesse noted that the introduction of the iPhone on Verizon's network in February did have an effect on sales as did AT&T's offer to sell the previous-generation iPhone 3GS for $49.

"Quarter after quarter the iPhone is a successful device," he said. "And it provides strong competition for Sprint. Needless to say Verizon's introduction of their new iPhone did have a notable impact on our performance for the quarter."

Overall Sprint said it added more than 1.1 million net wireless customers. This growth was driven mostly by Sprint's prepaid and wholesale businesses. And the company ended the quarter with more than 51 million wireless customers at the end of the first quarter of 2011. This includes 33.0 million postpaid subscribers, 13.1 million prepaid subscribers, and approximately 4.9 million wholesale and affiliate subscribers.

Even though the company continued to lose important contract customers, it improved its churn rate, or the rate at which customers leave its service compared to the same quarter a year ago. Sprint recorded its best-ever postpaid churn rate of 1.81 percent, compared to 2.15 percent during the same quarter a year ago. The churn rate was also better than in the fourth quarter of 2010 when it was 1.86 percent.

In fact, this was the best quarterly year-over-year improvement in postpaid churn in five years, according to Sprint, which has been struggling to retain customers ever since it merged with Nextel in 2005.

Sprint also improved its prepaid churn rate. Prepaid churn for the first quarter of 2011 was 4.36 percent, compared to 5.74 percent for the same quarter a year ago. And churn in the fourth quarter of 2010 was 4.93 percent.

From an operational standpoint, Sprint performed well during the quarter. The company narrowed its losses. In the fourth quarter, it reported a net loss of $439 million, or 15 cents per share, compared to a loss of $865 million, or 29 cents per share, a year earlier. Revenue was up to $8.3 billion from $8.09 billion.

But analysts remain skeptical about Sprint's long-term prospects. Not only does Sprint face stiff competition from rivals Verizon Wireless and AT&T, which is poised to acquire T-Mobile USA next year, but it also may need to spend more money going forward to keep its partnership with Clearwire going. Sprint owns a majority stake in Clearwire, which is building the nationwide WiMax network that Sprint is using to sell 4G service. And Clearwire needs more cash to finish building its network.

Still, the company appears on the right track toward recovery.

"The jury is still out on the financial engineering," Craig Moffett, an analyst with Sanford Bernstein, said in a research note today. "But Sprint operations, at least, seem genuinely on the mend. On virtually all key metrics, Sprint's results were better than we expected. Most importantly, Sprint is growing again, with subscribers and ARPU both rising, and this time without sacrificing margins."

Research In Motion today lowered its profit forecast for the fiscal first quarter amid weak shipments of its BlackBerry devices, signaling that the company is feeling increasing pressure from competitors.

In the quarter ending in May, RIM said it expects earnings between $1.30 and $1.37 per share. Analysts had expected RIM to report earnings of $1.48 per share. RIM also said it expects revenue to come in slightly below its previous guidance of between $5.2 billion and $5.6 billion.

RIM blamed the earnings and revenue shortfall on weaker-than-anticipated shipments of its BlackBerry phones. The company also said that more of its sales have shifted toward lower-cost handsets.

RIM has been struggling to compete against Apple's iPhone and Google Android devices for several quarters. And its market share has been slipping, particularly in the U.S. where the company tends to sell high-end smartphones. Meanwhile, competitors, such as Apple and Android have gained ground.

Also today market research firm NPD group reported that RIM's BlackBerry OS share in the smartphone OS market dropped to 14 percent of sales, down from 19 percent the previous quarter. Eating into those numbers was Apple, with iOS jumping 9 points. Apple now has 28 percent of smartphone sales. Google Android took 50 percent of the smartphone market in the first quarter of 2011.

Earlier this month co-CEO Jim Balsillie brushed off doubts that RIM has lost its edge in the market to competitors. Instead, he emphasized RIM's focus on international markets.

"We have been rapidly expanding our business in 180 countries," he said during a launch party for the new RIM Playbook tablet. "We have been focusing on the other 93 percent of the global market. We do need great products in the U.S., but this is a global business."

But the emphasis on emerging markets appears to be putting pressure on the company. While the U.S. is not the only market for smartphones, it does offer an opportunity to sell higher-priced devices. RIM's strategy to focus more on providing products outside the U.S. seems to be reminiscent of a strategy adopted by Nokia several years ago.

Nokia almost entirely pulled out of the U.S. market and focused its efforts overseas, including in developing countries where it became a leader in offering low-cost cell phones. While Nokia still remains the worldwide leader in mobile handsets, its lead has slipped in the past couple of years. And the company this week laid off some 7,000 employees as it tries to reboot its strategy and get back into the high-end smartphone business.

Analysts have noted for more than a year that RIM has failed to adequately address the U.S. smartphone market with devices that consumers want. Specifically, it has not addressed the touch-screen market very well. Neither the Storm, nor the follow-on Storm 2, nor the BlackBerry Torch--which has a slide-out keyboard and touch screen--have been hits for the company.

But RIM's co-CEO Balsillie has promised that new devices are on their way. The company plans to make several announcements at the upcoming BlackBerry World conference, from May 3 to 5 in Orlando, Fla., he said.

Some of the new devices could include the first touch-screen BlackBerry Bolds, which are code-named the BlackBerry Dakota for the GSM version and the BlackBerry Montana for the CDMA version. There's also talk of a new Storm 3, code-named the BlackBerry Monaco Touch.

The big question will be whether the new devices will be enough to help revive the company as competition in the smartphone market heats up with Google Android, Apple, and Microsoft Windows Phone 7 also looking for bigger pieces of the overall pie.

Shares of RIM were briefly halted after hours. When trading resumed, its shares dropped about 9 percent, according to CNNMoney.

Microsoft reported strong third-quarter sales and earnings, as the software giant weathered slowing PC sales with strong performances from its Office and Xbox businesses.

Net income in the company's fiscal third quarter climbed 31 percent from the year-ago period to $5.23 billion on sales of $16.43 billion, a 13 percent gain. Earnings per share climbed 36 percent to 61 cents, a figure that includes a 5 cent a share benefit from a settlement with Internal Revenue Service over tax audits from 2004 to 2006.

"I'm pleased with our healthy financial results for the quarter," Microsoft Chief Financial Officer Peter Klein said on a conference call with analysts, investors, and journalists regarding the results.

Investors were less pleased, though. Microsoft released its results after the stock market closed, but in after-hours trading, its shares fell 1.4 percent to $26.34. And that comes even as Microsoft bested average analyst projections of revenue of $16.2 billion and profits of 56 cents a share.

One reason: the dip in sales of Windows, one of the cornerstones of Microsoft's business. That revenue line took on greater significance after industry analyst IDC reported two weeks ago that global PC shipments declined 3.2 percent from January to March, compared with the year-ago period. Despite chipmaker Intel posting a blowout quarter last week, Microsoft's Windows business suffered.

Though Microsoft says Windows is the fastest-selling operating system in history with 350 million licenses sold, revenue for the flagship business fell 4 percent in the quarter to $4.45 billion. Operating income in the division slid 10 percent to $2.76 billion.

Microsoft believes that global PC sales slide between 1 percent and 3 percent in the quarter. Consumer PC sales fell 8 percent, including a 40 percent drop in Netbook sales. But business PC sales climbed 9 percent.

Klein cited the "breadth and depth" of Microsoft's product portfolio that allowed the company to overcome the slumping PC market. The biggest boost came from the Microsoft Business Division, comprised largely of the Office suite of productivity applications. That business, which generates more revenue than the Windows division, saw revenue grow 21 percent to $5.25 billion, fueled by sales of Office 2010, released a year ago. Operating income jumped 25 percent in the division to $3.17 billion.

Microsoft also got a big bounce from the Entertainment & Devices Division, where sales grew 60 percent to $1.94 billion, and operating income climbed 50 percent to $225 million. Microsoft's motion-sensing game controller, Kinect for Xbox 360, drove much of those sales. Launched before Christmas, the device became the fastest-selling consumer electronics device in history. The company also said it sold 2.7 million Xbox 360 consoles in the quarter, a 79 percent increase from the year-ago period.

Microsoft's Online Services Division, the home for its Bing search engine and other Web properties, continues to hemorrhage money, as losses grew 2 percent to $726 million. Last week, Yahoo Chief Executive Carol Bartz blamed Microsoft's adCenter technology--the system for buying and delivering online ads--for failing to generate revenue the company expected from its alliance with Microsoft.

Klein acknowledged the problem, saying that revenue per search from adCenter is lower than Microsoft expected too. The companies are delaying the roll out of the service in international markets until they sort through the problem.

"When we feel like it's straightened out, we'll move onto other markets," Klein said.

Sales in the online division grew 15 percent to $648 million.

The company noted that its operating expenses for the fiscal year that begins in July will climb to between $28.08 billion and $28.6 billion. That's a 3 percent to 5 percent jump from previous guidance, presumably reflecting the recently announced compensation plan for employees, which pays more cash and less stock.

Microsoft bought back $827 million in stock and declared $1.3 billion in dividends during the quarter. And even with that payout, the company is sitting on $50.15 billion in cash.

Looking toward the fourth quarter of the fiscal year, Klein expects the Windows unit to grow inline with expectations for the PC market, which IDC forecasts to be in the single digits. The Business division, which saw such strong growth in the quarter, should post mid- to high-single digit growth in the current quarter, Klein said. The Server & Tools Division should record low double-digit growth in the fiscal fourth quarter, Klein said.

As for the smaller business units, Klein noted that advertising for Microsoft's Online business sales should be inline with the overall market, but gave nothing more specific for the division. The Entertainment & Devices division should continue its rapid growth with sales jumping 25 percent in the current quarter.

Microsoft also noted that it will shift from the tradition of holding its annual financial analysts meeting in Redmond, Wash., shortly after releasing fourth-quarter results. Instead, Microsoft will hold the meeting, when top executives meet with analysts and investors, on September 14 in Anaheim, Calif., during its Professional Developers Conference. Klein didn't explain the rationale for the move, but PDC's are benchmark moments for Microsoft, where the company lays out its vision for developers. Microsoft will likely unveil details of Windows 8 at the conference

On April 28, 2001, the world of exploration changed forever.

On that day 10 years ago, Dennis Tito, a wealthy engineer who had recently turned 60, broke one of the most sacred barriers in exploration: he became the first private citizen to go to space.

Blasting off on that Saturday from the Baikonur Cosmodrome in Kazakhstan aboard Russian rocket--Soyuz TM-32--Tito was on his way to a place only professional astronauts and military- or government-sponsored personnel had been able to go before.

Tito was the launch client for a new company called Space Adventures that was founded in 1998. Led by chairman Eric Anderson, the company set out to change one of the most fundamental dynamics of space travel and make it possible for the first time for private citizens to experience life beyond Earth.

This was not possible in the United States. NASA was not interested in taking tourists aboard the Space Shuttle--and never has been--explained Space.com senior writer Clara Moskowitz. And so those like Tito who wanted to make like an astronaut had no choice but to go the Space Adventures route--which meant traveling to Russia for weeks of training and an eventual trip aboard one of that country's Soyuz rockets.

This would not be cheap, of course. In the beginning, Tito paid about $20 million, Moskowitz said, an amount that would be today considered "a bargain," given that a trip aboard one of the rockets to the International Space Station now runs more than $40 million.

But in the 10 years since Tito's flight, Space Adventures has booked more than $250 million in spaceflights, the company said. In addition to Tito, Space Adventures has been the booking agent for several other "self-funded" astronauts, including South African entrepreneur Mark Shuttleworth, Iranian-American engineer Anousheh Ansari, American video game developer Richard Garriott, Cirque du Soleil founder Guy Laliberte, and Microsoft software guru Charles Simonyi, the only two-time space tourist.

Related links
• Amazing videos of SpaceShipTwo in flight
• Celebrating 50 years since Yuri Gagarin's 'Let's Go!'
• Simonyi signs up for another rocket ride
• Spaceflight to cost $40 million in 2009

But back then, in the spring of 2001, this was an entirely fledgling venture, and Tito was about to do something that was seen as being just the first step to a possible eventual democratization of space.

"It was the first time a private citizen had paid his own way to go to space," said Moskowitz. "Up until then, it had only been professional astronauts and military...The rest of us were earthbound. It was the first time that everybody got a glimpse that maybe we could go to space, too."

While it's clear that a Space Adventures trip is only available to multimillionaires today, Moskowitz said the reason Tito's flight was so important was that it was a necessary first step down the long road towards much cheaper space travel. "The more demand for private space flight," she said, "the more those flights will take place and the more the price will come down. It's the first step pointing to the future, and it gives the rest of us hope that eventually, the price will come down to the point where you don't have to be a multimillionaire to go to space."

To be sure, though, if that happens it's decades away. British entrepreneur Richard Branson's Virgin Galactic promises $200,000 trips to space in the next year or so, but those are sub-orbital flights that return to Earth without passengers having even made a full trip around the planet. By comparison, Tito not only got to travel to the space station, he got to spend eight days there.

'It's now or never'
In an interview in Space.com, Tito explained that he had first come up with what he called his "lifelong goal" to go to space around the time of Soviet hero Yuri Gagarin's first flight in 1961. "So here I was, in the year 2000, and I was about to turn 60," Tito told Space.com. "I said, 'Time is running out.' Because at that point, the oldest person that ever flew as a rookie, to my knowledge, was Deke Slayton, who was 51. So I was getting over the hill, I thought. So I said, 'It's now or never.'"

Clearly, he made it, and as he told Space.com, the experience was memorable for a wide range of reasons. Perhaps the part that stuck with him the most was something he might never have guessed. "They had pencils hanging from strings in the cabin of the Soyuz," he recalled. "And these pencils just started floating, and I knew it was weightless. You couldn't really tell yourself, because you're strapped in with your belts, so you didn't float at all. But I knew that we were in orbit. And I looked out the window, saw the blackness of space, saw the curvature of Earth and I just said, 'Yes. I made it. I accomplished my life's dream.' And that moment I will never forget."