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IBM, which expects to unveil better-than-expected quarterly figures, has announced it will spend some of its cash on incentives to encourage some of its largest partners to invest more in training and other areas.

On Wednesday, the company introduced a scheme to help its business partners who are cooperating on its New Enterprise Data Center strategy. The scheme involves incentives for IBM partners to improve their knowledge in three specific areas: virtualization and consolidation; energy efficiency; and business resiliency.

And Mike Bernard, general business and channels marketing leader at IBM, told ZDNet.co.uk that there is also a fourth area under consideration, but not yet announced: information infrastructure.

"Skills in those areas are what's most needed," Bernard said. "From that the clients will benefit as well as the partners."

There are two levels of incentive for training that partners can apply for: general specialty, for which they will receive $25,000, and specialty elite, for which they get $100,000.

Bernard said the scheme was open to any qualifying partner. "There is no qualification other than that they are undertaking work in the chosen areas. They do that and they qualify and they get the money for it," he said.

According to IBM the money is there to invest not only in marketing but in business-development activities, marketing intelligence, investment, and certification training and even personnel salaries. It will also offer access to IBM Labs, use of IBM tools and more sales support, the company said.

Colin Barker of ZDNet UK reported from London.

In a fascinating letter from Sequoia Capital to the CEOs of its portfolio companies, Sequoia urges the obvious: be prudent and conserve cash. The counsel is obvious but largely unheeded in the technology industry, as well as throughout our economy: debt equals unhappiness, while profitability equals happiness (and flexibility).

Like every major shift in the environment, this one will offer opportunities as well as risks. JP Morgan was able to buy two great assets as substantial discounts with government assurances, precisely because they played the game frugally while others were more risk seeking...Many companies that thrived post 2001‐2003 were simply "Last Man Standing" in their industry. It doesn't sound all that glamorous, but it was the exact right strategy to deploy at the time.

As a result, Sequoia urges its companies to "(not) spend money until you have to," warning that "access to...capital...may be dramatically impacted" and that the "cost of capital is going way up."

I'm grateful to work for a company that has prudently managed its resources. Our CEO, the former COO of Business Objects, is very frugal and we've never hired in advance of the revenue to support those hires. Consequently, we have most of our venture money in the bank, as well as a profitable business that should get stronger during the downturn.

I've written before about how a recession would benefit open-source buyers, but it's also important to recognize how it benefits the vendors. Open-source vendors are demand-driven: the software is made available for download and customers find you. Alfresco routinely closes six-figure deals over the phone/e-mail in a 60- to 90-day sales cycle. Virtually none of our deals require an on-site visit.

This means we can invest more in our products while simultaneously charging less, which is what customers need in a tightening economy. Get more, pay less. That's the open-source value proposition for this recession-plagued economy. A subscription model helps, too, because it doesn't require the sale of new licenses, as a license-driven model like Microsoft's does. Red Hat could not sell a single new subscription this year and hold revenue steady. That's the power of open source.

But the fundamental premise underlying all of this is to operate one's business in a prudent and profitable manner.

Day after day this week, technology stocks got hammered: the CNET Technology Index, which tracks 66 publicly traded tech companies, dropped for the fourth straight day Thursday to hit its lowest level in more than three years.

Of course, tech stocks were not alone. Just when it seemed like it couldn't go any lower, the Dow Jones Industrial Average on Thursday fell below 9,000 for the first time in five years, and the Nasdaq and S&P 500 indexes all continued to slide.

But tech industry leaders, some of whom had thought their industry might be immune from the financial crisis, are seeing the week as a critical wakeup call. Even the healthiest of companies have seen their stocks being sold en masse. Google, for example, finished trading Thursday at about $329 per share, a new 52-week low and less than half the asking price for a Google share in November 2007.

So CNET contacted more than 20 tech executives, venture capitalists, and industry gurus to ask "How long and how bad this will be for the tech industry, and what should companies do about it?" Not so surprisingly, there was no consensus.

While nearly everyone interviewed is concerned about the economy, their reaction to it and their plans to deal with it are across the map. Experienced investors like Silicon Valley venture capitalist Ron Conway and venture capitalist Larry Augustin of Azure Capital Partners are cautious, while some executives (at least in their public comments) are downplaying the risks to their businesses.

Conway sent a sobering e-mail on Tuesday to the 130 start-up companies he's invested in: now is the time to hunker down.

"In 2000 and 2001, the companies that hunkered the fastest were the companies that survived," said Conway in an interview with CNET News. "Get costs under control; make sure you have plenty of runway."

And on the other end of the spectrum is Sprint Nextel CEO Dan Hesse.

"We think there will be some impact on our business," he said during an event to launch the company's new 4G wireless broadband network in Baltimore on Wednesday. "But compared to most other industries, we are relatively well insulated."

So who's right? Enterprise software maker SAP, which is particularly vulnerable to end-of-quarter deal cancellations, has already run into trouble, as have other notables such as Sun Microsystems and Netflix.

But it's not yet clear what will happen to consumer sales and online advertising. The monthly CNET-Consumer Electronics Association consumer confidence index showed surprising bullishness in late September. Internet Advertising Bureau statistics for the first half of the year showed surprising strength, but the IAB data did little to shed light on what will happen in the fourth quarter.

We also checked in with Web 2.0 start-ups to see just how freaked out they are this week. Again, the answer, according to our unscientific poll, ranges from very freaked out to the point of losing some serious sleep, to energized and looking forward to grabbing share while others falter. Many, however, reported having just three to six months of cash on hand, which poses some significant challenges given the credit crunch.

CNET Webware Editor Rafe Needleman wondered what start-ups will be the year's Kozmo. (Remember Kozmo, the munchie messenger service from the last bubble? Not a person who used it didn't love it.) He warns that some Web 2.0 start-ups that are well loved and well used by many are in serious danger of falling off the cliff.

Needleman has come up with 11 online services that might be in jeopardy. Twitter lovers, be warned!

Click here for a roundup of the latest financial news and its impact on the tech sector.

New BlackBerry storms in
In a diversion this week from the economic black clouds, a different type of Storm made landfall this week--the BlackBerry Storm. Considered by many to be the first true rival to Apple's insanely popular iPhone, Verizon Wireless and Research in Motion on Tuesday night introduced the much anticipated Storm, the first touch-screen BlackBerry, which is expected to hit the shelves in time for the holiday season.

RIM BlackBerry Storm

(Credit: RIM)

The Storm features a touch-sensitive display that's unlike that on any other touch-screen smartphone available today. Rather than provide haptic feedback (or none at all), RIM developed something completely new called ClickThrough. It consists of a suspension system that lies beneath the display, so that when you go to select an application or enter text, you actually push the screen down like you would any other tactile button.

That technology appears to be an answer to those "CrackBerry" addicts who are intrigued by the touch-screen technology, but can't wean themselves off the traditional keyboard feel.

Other highlights including dual-mode functionality, integrated GPS, BlackBerry OS 4.7, and more. A specific release date and pricing have not yet been announced.

It still remains to be seen, however, just how fiercely the Storm will be able to compete with the iPhone. At least one industry watcher, CNET blogger Don Reisinger, says there's no comparison, although he tips the hat to RIM for the neat new touch-screen design.

"I still don't see how the BlackBerry Storm will be able to compete on any level with the iPhone 3G," he wrote. "I just don't see how BlackBerry's first touch-screen device can compete against the iPhone if the vast majority of 'mainstream' users simply don't know anything about it."

Maybe it's a still a little early to tell, since consumers can't get their hands on a device yet. CNET Editor Bonnie Cha got a sneak peek. Click here for a video, in which she shares her impressions.

Also of note
Microsoft unveils its overhaul to Xbox Live...Seagate is turning its eyes to solid-state drives...Apple sends out invite for laptop event next week...Alleged Sarah Palin e-mail hacker is indicted...Judge keeps RealDVD restraining order in place...Google launches AdSense for Games...Government biometrics use still raises privacy concerns...Feds propose consolidation of personal info in databases...New pictures of Mercury and why researching the planet is so important...A "fabless" alternative for Advanced Micro.

Along with the economy, chip forecasts are heading south.

Following an outlook about weak chip industry capital spending from market researcher Gartner on Wednesday, iSuppli cut its 2008 IC revenue forecast to 3.5 percent from 4 percent on Thursday.

The memory chip industry is the canary in the coal mine. At least two memory chip manufacturers are on life support right now. Hynix, the world's second largest maker of memory, is trying to scare up cash by seeking buyers for a 36 percent stake in the company. The other ailing memory maker is Qimonda AG. Rumors have been rife that the manufacturing assets of the loss-ridden company will be snapped up.

Hynix and Qimonda won't get any help from the market in the coming months. Gartner said that the oversupply in memory, combined with a slowing consumer market, "gives little hope for an upside until 2010." Semiconductor industry capital spending is forecast to decline 25.7 percent in 2008--this would be the steepest decline since 2002--and another 12.8 percent in 2009, according to the market researcher.

The iSuppli report isn't any brighter. The outlook for memory revenue has been revised downward by 5.8 percentage points for 2008. iSuppli is citing the "credit crisis" as adversely affecting demand.

And let's not forget the Micron surprise on Thursday. The largest maker of memory chips in the U.S. said it would reduce its workforce 15 percent during the next two years. "Selling prices for NAND flash memory (are) significantly below manufacturing costs," Micron said in a statement.

SanDisk--the largest supplier of retail flash memory products--has problems of its own. It has become a buyout target as its stock price has steadily declined over the last 12 months.

Click here for ongoing coverage from CNET News, 'Tough times for tech'

After cutting executive pay last week, Micron Technology is now paring staff as it scales back flash memory chip production.

On the heels of reporting a $344 million fourth-quarter loss last week--when Micron said it was cutting executive pay 20 percent--the Boise, Idaho-based memory chip maker said Thursday that it was restructuring its memory operations.

Micron will reduce its global workforce by approximately 15 percent during the next two years. Most of the workforce cuts will occur in Boise.

"The combination of declining customer demand and product oversupply in the marketplace has driven selling prices for NAND flash memory significantly below manufacturing costs," Micron said in a statement.

As a result, IM Flash Technologies (IMFT), a joint venture between Micron and Intel, will discontinue the supply of NAND flash memory from Micron's Boise facility. The NAND operation shutdown will reduce IMFT's NAND flash production by approximately 35,000 (200 millimeter) wafers per month, Micron said.

NAND flash is used in flash drives for digital cameras and digital music players as well as solid-state drives.

Micron and Intel have other facilities that make NAND flash, including one in Lehi, Utah.

"Micron is in a strong position relative to our competitors...but we are not immune to the difficult global market conditions that are affecting us all," said Micron CEO Steve Appleton in a statement.

Cash restructuring and other related expenses are anticipated to be approximately $60 million and "next year's cash operating margin benefit is expected to exceed $175 million," Micron said.

Last week's red ink was Micron's seventh straight quarterly loss--and it reported a net loss for the entire 2008 fiscal year of $1.6 billion.

The memory chip industry overall is caught in a particularly brutal downward price spiral that is threatening the viability of even the largest players, including companies like Hynix.

Intel-backed start-up ZPower may be the first to introduce an alternative to the ubiquitous lithium-ion laptop battery, with a silver-zinc technology the company says will make its debut with a large laptop maker in 2009.

The company promises up to 40 percent more run time than current lithium-ion batteries, and says its batteries are 95 percent recyclable.

ZPower's silver-zinc battery

(Credit: CNET News)

ZPower made the announcement ahead of the Batteries 2008 conference in Nice, France, which began Wednesday, and where ZPower's chief executive, Ross Dueber, will be presenting ZPower's take on silver-zinc technology, also known as silver-oxide.

Silver-zinc batteries were initially developed for aircraft, and were used to power the Apollo spacecraft, as well as finding their way into torpedoes and the U.S. Alfa class submarine.

ZPower has also improved the batteries to be good for more than 200 cycles at full discharge. While this is an improvement over older silver-zinc technology, it is still lower than lithium-ion batteries, which laptop makers say should last for 300 to 500 cycles at full discharge. However, silver-zinc holds a charge longer, so you can use the battery for longer before it needs a recharge.

The lack of lithium and a water-based chemistry means silver-zinc batteries are not susceptible to the inflammability issues that have plagued some lithium-ion batteries, and that caused widespread laptop battery recalls last year, ZPower said.

Due to the high cost of silver, silver-zinc batteries have never come into large-scale consumer use except for in small "button" cells, such as watch batteries. ZPower said it plans to offset this cost through a trade-in policy that will reduce the need to mine for new materials. Ninety-five percent of the key materials in the batteries are recyclable and reusable, and the raw materials recovered in the recycling process are of the same quality as those used to create the battery, ZPower said.

Another traditional concern with silver-zinc batteries is mercury leakage. Mercury has been traditionally used in the batteries to suppress zinc corrosion, which leads to hydrogen production and deformation of the shape of the battery. The poisonous mercury left in such cells at the end of their useful lives is a serious ecological concern.

ZPower said it has addressed shape-change problems with its zinc anode, a composite polymer electrode that inhibits both shape change and the growth of dendrites, a problem for silver-zinc batteries as well as other battery technologies.

Other innovations in the batteries are a new separator stack that resists dendrite growth and silver cathode degradation, and a nano particle coating on the silver cathode that is designed to enhance conductivity, ZPower said.

ZPower, which counts Intel as one of its main financial backers, first demonstrated its technology at the Intel Developer Forum in August.

Battery life has remained a major issue for powering laptops and consumer electronics, with electronics makers looking to extend the length of a charge via techniques such as silicon nanowires or simply by making other parts of the device, such as the screen and the disk drive, more efficient.

Environmental impact has also been a serious concern, since most batteries end up in a landfill; currently less than 2 percent of consumer batteries are collected when they become waste, according to Defra. The European Union is attempting to encourage battery recycling via a revised Batteries Directive, which became law in EU member states in late September.

Matthew Broersma of ZDNet UK reported from London.

The largest hard-disk drive maker is going solid-state. Slowly.

Seagate will enter the market for solid-state drives in 2009, as it slowly embraces a technology that will, in some cases, replace its bread and butter: hard disks.

"Our history is based on rotating magnetic media. But as solid-state comes online, we're embracing this new media type," said Rich Vignes, senior manager of market development at the Scotts Valley, Calif.-based company.

Seagate's first target market will be large enterprise customers. Consumer SSDs from Seagate will come later. The challenge is to convince large enterprise customers that SSDs are safe. Although hard-disk drives have endurance problems of their own, corporate customers must be convinced that a technology as new as solid-state storage is reliable.

"There isn't really a clear way of describing endurance or life expectancy of a solid-state drive. So, we're working on that as an industry standard," through JEDEC, a large standard body, Vignes said.

The presence of large players such as Seagate will allay fears, he believes. "As companies like Seagate start to demonstrate field-proven reliability and endurance in enterprise applications, we'll overcome those (solid-state drive) endurance fears."

Analysts are bullish that, with time, SSDs will catch on. "SSDs offer much better MTBFs (mean time between failures) than HDDs, although the endurance is an issue that has to be addressed," said Gregory Wong, an industry analyst at Forward Insights.

"IT managers tend to be conservative, so the qualification time will be quite long--nine months to a year, and early adopters will be Web 2.0 companies such as Google, Facebook," Wong said.

Seagate, which will enter the SSD market in 2009, says there are challenges to make SSDs palatable to large corporate customers.

(Credit: Seagate)

Seagate says it can tap into the decades of expertise it has in error correction. "Some of the skills we've picked up along the way, to deal with imperfect media, has applicability to dealing with imperfect media on NAND." All solid-state drives use NAND flash memory as the storage medium.

Fears aside, the lure of SSDs is speed--and this is what is driving Seagate into the market. "For SSDs, the play is performance, performance, performance. Did I mention performance?" Vignes said.

"SSDs have 100 times better random IOPS than HDDs," Wong said, referring to the dramatic speed advantage SSDs have over HDDs in handling input-output operations per second. Samsung has said in the past that companies such as Citibank and American Express peg server performance on IOPS.

Of course, it won't be a cakewalk for Seagate. There is plenty of competition already. Intel has started shipping SSDs for both enterprise and consumer markets. And Samsung is a leading player in the consumer market--its drives are used by Dell and Apple--and it is now stepping up efforts to snag corporate customers. On Thursday, Samsung announced that its SSDs have been selected, after extensive testing, for use in the Hewlett-Packard ProLiant blade servers.

"While for some companies, it's a new market and a new product, for us, it's an existing market, new product," Vignes said.

Seagate will get the raw material for SSDs--NAND flash memory--from others. "We're not going to make NAND. We are in discussion with all the premier NAND suppliers," Vignes said.

(Original CNET report here.)

Silicon Valley venture capitalist Ron Conway sent a sobering e-mail on Tuesday to the 130 start-up companies he's invested in: now is the time to hunker down.

Credit: Joi Ito

"You better rely
on your own
proactive action."

-Ron Conway

"In 2000 and 2001, the companies that hunkered the fastest were the companies that survived," said Conway in an interview with CNET News. "Get costs under control; make sure you have plenty of runway."

While that admonition from Conway, a noted investor who over the years has put early money into tech giants like Google and up-and-comers like Digg, was timely, it's hard to imagine that any tech executive who's been paying attention to the news needs to be reminded that rough economic conditions are most definitely ahead.

How bad those conditions will be and how long they'll last is anyone's guess. The CNET Technology Index, which tracks 66 publicly traded tech companies, dropped for the third straight day Wednesday to hit its lowest level in more than three years. Even the healthiest of companies are seeing their stocks being sold en masse. Google, for example, finished trading Wednesday down 2.28 percent to $338.11 per share; that's a new 52-week low and less than half the asking price for a Google share in November 2007

Bad news persists in the overall economy as well, despite continued attempts at government intervention. The Dow, Nasdaq, and S&P 500 indexes all continued to slide Wednesday; the Dow has now dropped 35 percent from its high a year ago.

CNET contacted more than 20 tech executives, venture capitalists, and industry gurus Wednesday to ask "How long and how bad this will be for the tech industry, and what should companies do about it?" Not so surprisingly, there was no consensus. While nearly everyone interviewed is concerned about the economy, their reaction to it and their plans to deal with it are across the map. Experienced investors like Conway and venture capitalist Larry Augustin of Azure Capital Partners are cautious, while some executives (at least in their public comments) are downplaying the risks to their businesses.

Credit: Susan Dove/CNET News

Update on October 9 at 9:00 a.m. with additional comments from Intel and AMD.

Advanced Micro Device's new manufacturing venture may come with some old baggage.

After AMD announced on Tuesday that it would spin off its manufacturing assets to a new company partially owned by the Abu Dhabi government, Intel was quick to warn AMD about patent and cross-licensing concerns.

AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest (55.6 percent) and have equal voting rights with AMD in The Foundry Company. The total investment is expected to come to approximately $8 billion.

Intel-AMD disputes are certainly not new. AMD sued Intel in 2005 alleging antitrust violations. But this time Intel has AMD in its sights.

At the moment, Intel is simply expressing concern about the deal, per the Patent Cross License Agreement between the two companies. (The two chipmakers have cross-licensing agreements that go back to 1976.)

The Agreement, which was signed in 2001 and expires in 2010, has restrictions related to the transfer of licenses and patents.

"We don't know enough yet. We have a lot of questions about how this deal is structured," said Intel spokesman Chuck Mulloy.

"According to the public statements they made in their press releases, they (ATIC) also have 50 percent voting rights. So we need to understand a lot more about it. We just have to do due diligence. Make sure that our IP (intellectual property) rights are protected."

AMD, for its part, believes the transaction is structured in a way that doesn't violate any agreements. "We are completely confident the structure of this transaction takes into account our cross-license agreements. Rest assured, we plan to continue respecting Intel's intellectual property rights, just as we expect them to respect ours," said AMD spokesman Drew Prairie.

Corrected at 8:11 p.m. PDT: See below for details.

Intel has tapped Senator Dianne Feinstein's chief of staff to head its Washington office.

Intel said Wednesday that Peter Cleveland, chief of staff to Senator Dianne Feinstein (D-Calif.) since 2006, will join the company as its new vice president for global public policy and head of the chipmaker's Washington, D.C., office. Cleveland will join Intel immediately after the November 4 presidential election.

"We're spending more energy telling our story," said Tom Waldrop, an Intel spokesperson. Waldrop said that Cleveland is "extremely well connected in Washington."

Prior to his role overseeing Feinstein's office, Cleveland was the senator's legislative director from 2004 to 2006. He has also served as staff to both the Senate Finance and Foreign Relations committees and as a corporate and government relations attorney for a "leading" international law firm, according to Intel. Cleveland holds a law degree from Georgetown University and an undergraduate degree from Columbia University. He is a member of the bar in New York and the District of Columbia.

"Peter Cleveland brings two decades of policy, legislative, regulatory, and legal experience to our Washington office," said Bruce Sewell, Intel senior vice president and general counsel, in a statement.

Intel has a long list of policies that it promotes including communications and broadband, intellectual property and patent reform, and education reform. Intel also has an ongoing challenge to educate Washington about its role in the U.S. economy. Intel has a number of multibillion-dollar chip manufacturing plants in the U.S. that help to keep the country competitive by maintaining a high-tech domestic manufacturing base, Waldrop said.

Cleveland is the latest of a number of additions to Intel's government affairs staff in recent weeks. Brian Huseman, who was chief of staff to former FTC Chairman Deborah Majoras, joined Intel's Washington office last month from the FTC to work on issues of trade and competition policy globally. Audrey Plonk joined Intel's global public policy staff last month at company headquarters in Santa Clara, Calif., where she will work on security assurance and critical infrastructure protection policy. Plonk previously worked in the National Cyber Security Division of the Department of Homeland Security, where her focuses included international security policy issues.

Intel has had a Washington office since 1986 but is now "beefing up operations," according to Waldrop.

Correction: This story initially gave the wrong day of the announcement. It was made Wednesday.