The Wii Fit game is one of Nintendo’s biggest sellers with 697,000 sold in the U.S. in November. Courtesy of Nintendo

By Yi-Wyn Yen

Nintendo seems to have bucked the recession. The Japanese video game manufacturer has doubled November sales of the Wii in the U.S. from a year ago, according to NPD’s latest release on gaming sales.

The demand for the Wii remains strong since the game console’s debut two years ago. The company sold a record 2 million Wiis last month, higher than the previous 23 months. Nintendo (NTDOY) has significantly increased shipments of the red-hot Wii for this holiday season after dealing with a shortage last year. Last November Nintendo sold 981,000 Wiis.

Analysts were taken by surprise by how well the $249 console has performed in a flagging economy. “Two million? You sure? This is mind-boggling,” said Michael Pachter, a top industry analyst for Wedbush Morgan Securities. Pachter had predicted sales of 1.4 million Wiis. “At least Nintendo is meeting demand.”

That’s something the company didn’t manage to do last year, when it underestimated the craze for its consoles. Nintendo had to offer IOUs for the Wii last December and ran out of the DS, its handheld console, before Christmas. This time around, Nintendo increased its holiday inventory for the Wii by 50% and 10% for the DS for the shopping season. November sales for the touchscreen DS, which launched four years ago, tripled to 1.6 million from October ‘08 sales, according to NPD.

The NPD numbers also looked strong for the Xbox 360 (MSFT). A recent price reduction to $199 for its entry-level version, exclusive titles like Gears of War 2 and Fable 2, and a major software upgrade moved 836,000 Xbox consoles in November. Gears of War 2 was the top seller for games with 1.6 million copies sold.

Sony (SNE) is struggling to pick up steam with the PlayStation 3, which remains the priciest of the three console makers. Sony sold 378,000 units of the PS3. The company released Home, its sophisticated virtual reality world, on Thursday to attract more gamers to the PlayStation platform.

Reports that consumers are drastically cutting back on spending hasn’t stopped nearly 15 million people in the U.S. who have bought a DS or Wii this year. “The consumer is voting with their wallets and pocketbooks,” said Nintendo of America president Reggie Fils-Aime. “That the Wii and DS represent the best entertainment value in the marketplace explains why these strong sales are happening.”

Pachter says it’s because people are now choosing a Wii over a latte. “There’s a solid middle class that’s going to make substitutions to buy games. Now it’s buy a Wii and don’t eat out for a month, or don’t take that ski trip,” he said. “Or cut out Starbucks.”

By Yi-Wyn Yen

These days, getting a large handout from venture capitalists is rare. It’s even tougher when your startup needs a lot of cash to compete with Google.

Kosmix, however, has defied the odds. In late October, the plucky startup raised $20 million, led by Fortune’s parent company Time Warner (TWX), by assuring investors that Google is not the only way to search on the Web. Kosmix says it takes a new approach to searching by categorizing everything by broad topics for those times when you don’t know exactly what you’re looking for.

“This reflects the fact that Kosmix has a unique technology that’s working well,” said Jonathan Miller, the former chief executive of AOL who is on Kosmix’s board. “No question it’s a difficult period to raise significant amounts of money in a late-stage round.”

A powerhouse of investors are banking on a future where search will evolve beyond typing in specific keyword terms on Google. Former Motorola CEO Ed Zander, who launched the popular Razr mobile phone, recently joined as a private investor and advisor to the company. The Mountain View-based startup, which has raised a total of $55 million in three years, is also backed by Amazon (AMZN) cofounder Jeff Bezos and Legg Mason fund manager Bill Miller.

Miller recently made noise for reportedly raising money from private investors to buy Yahoo (YHOO). Miller, a one-time Yahoo board nominee, refused to talk about Yahoo. He discussed the need for companies like Kosmix to take search to a new level in a way that Google (GOOG) does not. As CEO at AOL, Miller had tried to acquire Kosmix, cofounded by veteran entrepreneurs Venky Harinarayan and Anand Rajaraman. “How do you create breadth and depth in content pages and make it a satisfying user experience is a big and hard problem,” Miller said. “Kosmix has firmly established the lead in how this is going to happen.”

Take the phrase Mount Everest as a topic. Without more search keywords, Google broadly targets what you may be looking for. Google’s first three links include an empty graphics box from Google Maps, a Wikipedia entry, and a well-regarded news site for mountain climbers. The same topic on Kosmix returns a rich summary from Web 2.0 sources. Kosmix includes a short paragraph from Wikipedia along with photos from Flickr, videos from YouTube and video search engine Truveo, forum posts from trekkers seeking climbing partners to Everest, and top mountaineers who’ve climbed Everest.

Rajaraman insists his startup is not another search engine trying to take on the search giant. Google’s competitors - from tiny startup Cuil to software maven Microsoft (MSFT) - are struggling to make a dent in Google’s growing dominance in search despite spending billions. The approach, Rajaraman says, is to deliver relevant results with blogs, videos, pictures and news on a single page.

“We consider ourselves an explore engine. When you don’t know what’s interesting or know enough about a topic, you come to us. We’ve built algorithms based on topics that lead to a very different end point,” he said. “Google’s algorithms are about finding the best Web pages out there. It’s really, really hard to mess with that.”

By Yi-Wyn Yen

Yahoo’s fate is becoming more convoluted every day. Just two days after the Times of London reported that talks between Microsoft and Yahoo were back on, the the Wall Street Journal says former AOL chief executive Jonathan Miller is trying to raise money from private equity and sovereign wealth investors to buy the struggling Internet company.

Shares of Yahoo (YHOO) spiked 11% to $12.50 in mid-day trading on the news that Miller wants to raise between $28 billion to $30 billion to buy the company at $20-$22 a share.

Calls to Miller’s office were not returned.

Some are skeptical that Miller will be able to succeed. Wrote Standard & Poor’s Internet analyst Scott Kessler in a note, “We think YHOO is attractively valued, but that Miller would have difficulty raising this amount of capital, given the state of the global economy, of capital markets, and of YHOO itself.”

Miller has close ties with Yahoo and activist investor Carl Icahn. Miller was nominated to Yahoo’s board last August as part of a settlement which gave Icahn three seats. However, Miller withdrew because former employer Time Warner (TWX) (which also owns Fortune) would not waive a non-compete clause. Miller, who runs venture firm Velocity Interactive Group, was a consultant to Microsoft (MSFT) and Yahoo during their negotiations earlier this year.

Last week Icahn doubled down on Yahoo by spending $67 million for another 6.8 million shares. The corporate raider’s move fueled speculation that a search deal with Microsoft was inevitable. Icahn has lost roughly $1 billion since buying 69 million Yahoo shares at $25 a pop.

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

It was a tale of two techs Tuesday. Hewlett-Packard (HPQ) surprised Wall Street on Tuesday with a fourth-quarter earnings report that beat analysts’ profit and sales targets. HP shares soared nearly 14% in early trading.

Meanwhile, glass maker Corning (GLW) warned of a sales shortfall in the current quarter as demand for its flat-screen TV and computer panels drops faster than anticipated. Shares fell nearly 12%.

HP posted preliminary adjusted earnings of $1.03 a share, which compares with 84 cents in the year-ago quarter and beats analysts estimates by 3 cents. Sales for the quarter ended Oct. 31 were $33.6 billion, an 19% improvement from revenues of $28.3 billion in the same quarter last year. Analysts were looking for sales of $33 billion, according to Thomson First Call.

The recent acquisition of IT service shop EDS so far has helped HP dodge the full impact of the impending recession. “Our ability to execute in a challenging marketplace differentiates HP, enabling it to increase share, expand earnings and emerge from the current economic environment as a stronger force,” CEO Mark Hurd said in a statement.

Looking ahead, HP predicts pro forma profit of about 94 cents a share on sales of $32.25 billion in the first quarter ending in January. Analysts expected adjusted earnings of 93 cents a share on $33.7 billion in sales. HP says it will release its October quarter earnings Nov. 24.

Corning, however, continues to struggle with order cuts as flat-panels and big-screen TV inventories pile up. The company, the largest maker of liquid crystal display screens for televisions and computers, says fourth-quarter sales will fall below its guidance of $1.1 billion to $1.2 billion. It warned that profits will be at the low end or below its prior guidance of $0.20 to $0.28 a share. Corning did not offer revised financial targets.

Xbox 360 gets an image makeover to compete with the Wii. Image: Microsoft

By Yi-Wyn Yen

The Xbox 360 is getting a major software update designed to transform it into a multimedia machine.

Starting Wednesday, all Xbox 360 owners will be required to update their gaming consoles so that they can watch movies in high-definition, stream TV shows and movies from Netflix (NFLX) and navigate categories like games, photos, and videos through a simplified dashboard populated with cutesy avatars.

Microsoft (MSFT) is counting on the Xbox makeover to not only drive console sales during a grim holiday-spending season but to broaden its appeal to casual gamers. In a statement, Microsoft hailed the move as “a new dawn in home entertainment,” going so far as to compare the Xbox Experience to the dawn of color television.

The company has been trying for years to brand the Xbox as the digital entertainment hub for the living room. Microsoft executive Shane Kim bragged that through the improved Xbox, the company is “building the world’s largest social and entertainment network” that connects to televisions. The Xbox is now referred to as the “New Xbox Experience.”

Some analysts argue that a recent price cut, not the Xbox Experience, is the console’s major appeal. Microsoft reduced its entry-level Xbox by $80 in early September to $199 and saw U.S. sales rise 33% in October, according to market researcher NPD. The Xbox Experience “is a marginal improvement,” said Todd Greenwald, a senior gaming analyst with Signal Hill. “I think if people are at Target and see an Xbox on a store shelf, they may see the Xbox Experience as a nice feature, but the price point is a much bigger driver.”

Both Xbox and Sony’s PlayStation 3 (SNE) are trying to make inroads to compete with Nintendo’s top-selling Wii. In October, Microsoft sold 391,000 Xboxes in the U.S. while Sony sold 190,000 PS3s. But Nintendo (NTDOY) outsold both gaming consoles by moving 803,000 Wiis, according to NPD.

Xbox Experience, which will offer more than 12,000 movie titles to rent from MGM, Paramount Pictures and Warner Bros., is part of Microsoft’s ongoing efforts to appeal beyond the hardcore gamer market.

Sony is also taking the multimedia approach. The PS3, which lets consumers play Blu-ray discs, is currently building a sophisticated virtual reality world called Home to make gaming a more social experience. Said Susan Panico, senior director of the PlayStation Network, “Our goal from Day 1 is to be an entertainment network. It’s about original programming and videos, and now we’ll bring Home to the PlayStation network.”

Greenwald says new software features Xbox and PS3 aren’t enough to take down the Wii. “I don’t think the Wii is successful because of the Mii avatars. With the Wii, you just pick up a motion-controlled wand and play. You don’t have to learn a controller and all its functions,” Greenwald said.

Microsoft’s Kim says it’s not trying to out-Wii the Wii, but noted the 360 can compete with Nintendo on price. The low-end version of the Xbox is $50 cheaper than the Wii, a point that Kim stresses. “We feel great about having the lowest price for a console, and that will be a big advantage for the holiday season,” he said. “When consumers are looking to buy a console for their kid this holiday, they will see that we’re at $200. Hey, $200 is $200.”

By Yi-Wyn Yen

At the Web 2.0 Summit two weeks ago, Yahoo CEO Jerry Yang was asked if he was the right guy to lead the battered Internet portal. Yang dodged the question by defending his passion for the company he co-founded 13 years ago. “I didn’t make the decision of being the CEO lightly,” he said. “I wanted to make a change at Yahoo that I believe I can make….That’s a dream that I felt I could achieve by being CEO and that’s still the dream today.”

That dream came to an end Monday when Yahoo announced that Yang, 40, will step down as CEO and return to his former role as “Chief Yahoo.” The company’s board said it has hired headhunter Heidrick & Struggles to find a replacement.

Yang has come under fire for his inability to turnaround the company in his past 17 months as CEO. During his short tenure, Yahoo (YHOO) has had two major rounds of layoffs and has seen its search market share shrink significantly while a series of reorganizations led to the departure of senior executives. Yang was heavily criticized by Wall Street and shareholders for failing to reach an agreement to sell the company to Microsoft (MSFT). But the final straw for Yang came when Google (GOOG) pulled out of a controversial ad agreement earlier this month that would have boosted Yahoo’s revenues by hundreds of millions of dollars.

“When the board asked me to become CEO and lead the transformation of the company, I did so because it was important to re-envision the business for a different era to drive more effective growth,” said Yang in a statement. “Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader. I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation.”

When Yang took over, he was widely viewed as the right choice to replace Terry Semel, the previous CEO from Hollywood who spent six years molding Yahoo into a media company. Yang promised change in the first 100 days as CEO, declaring there would be “no sacred cows.” But 100 days came and went. So did the next 400 days. Frustrated investors have seen Yahoo’s shares drop 62% in value since Yang took over in mid-June 2007. While Semel never had Yang’s geek cred, he did manage to drive Yahoo’s stock price up to an eight-year peak of $43.21 in January 2006. Yahoo’s shares closed at $10.63 on Monday.

Yang has admitted his legacy may forever linked to the debacle with the Microsoft takeover. Yahoo’s board and management team quickly turned down Microsoft’s original offer to acquire Yahoo for $31-a-share in February. The two parties spent six months trying to negotiate a deal. “As a CEO, my job is to find the right path for Yahoo,” Yang said at the Web 2.0 conference. Not getting the deal done “is something that I’ll be labeled with.”

By Scott Moritz

U.S. regulators on Monday charged Dallas Maverick owner and outspoken blogger Mark Cuban with using confidential information in 2004 to sell his stake in Mamma.com, a Montreal search engine now known as Copernic (CNIC). His sale of all 600,000 shares helped Cuban avoid a 10% dive in the stock, or about $750,000 in losses, the government contends.

The Securities and Exchange Commission filed a civil lawsuit against Cuban on Monday. No criminal charges were filed.

Cuban, the biggest shareholder in Mamma.com, was allegedly angered by plans for a private sale of discounted Mamma.com stock, according to the lawsuit filed in U.S. District Court for the Northern District of Texas.

Mamma’s CEO had contacted Cuban to see if he was interested in participating in the so-called PIPE, or private investment in public equity, according to the SEC complaint. Selling the stock at a discount effectively dilutes the stakes held by existing shareholders. Cuban allegedly responded: ”Well, now I’m screwed. I can’t sell,” according to information provided by the Mamma CEO to regulators.

But sell he did, according to the SEC. One minute after hearing the full details of the private investment offer for Mamma.com shares, Cuban allegedly called his Dallas broker and said: “Sell what you can tonight and just get me out the next day.”

The SEC wants Cuban to pay back the $750,000 he avoided in losses after Mamma.com’s shares fell as well as a potential fine of $2.25 million.

Cuban issued a statement Monday saying the charges had no merit. “The government’s claims are false and they will be proven to be so,” he said.

Cuban’s net worth has been estimated to be $2.8 billion. His big jackpot came in 1999 when he sold Broadcast.com to Yahoo (YHOO) for nearly $6 billion, one of the largest cash-outs of the Internet boom.

As the owner of the Mavericks and Internet soapbox Blog Maverick, Cuban has displayed a fiery temperament at times. After a few shouting matches with Mavericks head coach Avery Johnson earlier this year, Cuban fired Johnson, the most successful coach in franchise history, at the end of the NBA season in April.

If skirting securities laws to avoid losing a relatively insignificant amount of money sounds strange, it isn’t, says Scott Friestad, deputy director of enforcement for the SEC.

“It’s not uncommon that the amount of the transaction is not correlated to a person’s financial wherewithal,” said Friestad. “We’ve seen sales worth $15,000 by people with $1 million-a-year salaries.”

By Michal Lev-Ram

SAN JOSE - On the same day that Intel (INTC) slashed more than $1 billion from its sales forecast and more analysts cut sales estimates for Google (GOOG), Silicon Valley luminaries momentarily put the downturn aside and celebrated a happier cause — using technology to benefit the world.

Nearly 1,500 guests on Wednesday night attended the annual Tech Awards, which recognize innovations used to alleviate poverty around the world. ”Tonight is a reminder of all the things that are going right,” said Mike Splinter, CEO of Applied Materials (AMAT), a Tech Awards sponsor. The speech came just hours after the chip equipment maker announced earlier Wednesday that it will cut nearly 2,000 jobs.

The international awards program honored 25 organizations, five of which received a $50,000 cash prize, including Digital StudyHall, an India-based organization that was recognized for bringing instructional DVDs to underpriveledged classrooms.

Other award recipients included the Full Belly Project, a North Carolina-based non-profit that has developed a $50 nut sheller that can shell 125 pounds of peanuts per hour and requires no electricity, which helps subsistence farmers in countries like Mali and Haiti.

The Portable Light Project, another Tech Award recipient, manufactures flexible solar panels that can be woven into clothing or handbags. The wearable photovoltaics harvest sunlight to charge cell phones and other devices. According to the Massachusetts-based nonprofit organization, it is already distributing its portable solar panels in countries like Mexico and South Africa.

“People who are poor are often on the move,” said Sheila Kennedy, who heads up the project. “They don’t have a roof, so you can’t put solar panels up.”

The star of the evening was Muhammad Yunus, who received the Nobel Peace Prize in 2006 for his Grameen Bank, which gives out small loans to some of the world’s poorest people. The father of the so-called microcredit movement spoke about his creative approach to financing and efforts to bring cell phones and solar power to impoverished regions. According to Yunus, his Grameen Bank has doled out more than $700,000 in housing loans (that kind of money won’t get you much in the Silicon Valley, but in Bangladesh a tin-roofed house costs just $300 to build).

Yunus said that when he initially approached banks about lending to the poor, they refused and said poor people are not credit worthy.

“The poor turned out to be more credit worthy,” said Yunus, whose Grameen Bank is self-reliant (it no longer relies on donor funds) and claims to have a loan repayment rate of more than 95% “We never had a subprime housing crisis.”

By Yi-Wyn Yen

Microsoft is trying its luck at social networking - again.

After a failed attempt four years ago, Microsoft (MSFT) is ripping a page from Facebook’s playbook, introducing on Thursday new profile and photo-sharing features to its web-based Windows Live services. The software giant allows users with Windows Live Hotmail or Messenger accounts to create online profiles that highlight what a person is doing through a Facebook-like newsfeed.

Microsoft hopes that giving Windows Live a new facelift will encourage more people to spend more time on its web properties. Checking e-mail or instant messaging accounts for up a third of the time people spend on the Internet, according to research firm comScore. Microsoft has 375 million Hotmail users and 325 million Messenger users worldwide. “If we can gain a whole 60 minutes per user, we would grow a whole Facebook in [time spent],” says Brian Hall, general manager for Windows Live.

Though Hall admits that Microsoft’s new strategy could shift some attention from Facebook - in which Microsoft holds a minor stake - to Windows Live, the real concern is longtime rival, Google (GOOG). The search giant already has a commanding lead in the search advertising business, and Microsoft worries about Gmail’s growing share in the e-mail market. “According to comScore, Google has a 6% share of email [in the U.S.] But they’re growing fast,” Hall said.

Like Google, Microsoft has struggled to make inroads in social networking. Four years ago, Microsoft launched Spaces, a blogging tool to build a social networking site within Windows Live. Though Microsoft added 100 million people in it first year, less than 1% of social networking users use Spaces today. “The blogging approach [to social networking] is not the right approach. People are too busy to make that investment,” Hall said.

Windows Live lets its new newsfeed feature do the heavy lifting to give people’s friends updates on what they’re up to. Microsoft has partnered with more than 50 web companies, including Amazon.com (AMZN), Twitter, Flickr,and iLike, a music discovery site. Anytime you blog on WordPress, write a restaurant review on Yelp, or watch videos on Veoh, your status is updated through your Windows Live profile.

Analysts say the new Windows Live makeover is a preview of Microsoft’s newest operating system, Windows 7. The latest version of Windows is expected to integrate tools like photo-sharing, videos, and messaging more seamless between PCs and mobile devices. “All these built-in applications with a blend of Google, Apple, and Facebook is Microsoft’s view of an integrated world,” said Rob Enderle, president of the Enderle Group. “Windows Live comes out first. This is designed for Windows 7.”

Microsoft’s had success with operating systems, but the company still struggles to make a profit from its Internet businesses. Microsoft is banking that more time spent on Windows Live will translate into more web searches on Live and more ads viewed on its portal, MSN. For its fiscal first quarter, which ended in September, Microsoft lost $480 million from its online unit. “We have to get great at the advertising business,”  Hall said.