The trouble with being number one in any industry is that you have nowhere to move but down. Few companies know this better than Nokia (NOK), the Finnish telecommunications giant that has dominated cell phones for so long that in some parts of the globe the brand itself has become synonymous with the device. More

After the Vista debacle, Microsoft changed the way it makes software. The result – Windows 7 – is winning raves. Can a new operating system (and a new attitude) help the company take on Google?

With Microsoft's founder and chairman, Bill Gates, trotting the globe in a quest to abolish diseases, his handpicked successor, CEO Steve Ballmer, has had most of a decade to move the company beyond its two biggest cash cows, the Windows operating system and the Office productivity suite. So far, not so good.

The company's web forays, such as MSN, have only highlighted the dominance of Google and Yahoo. In software for smartphones, there is Apple, RIM (RIMM), and everybody else. MP3 players? Microsoft's Zune hardly merits a mention. And even the core franchise has suffered. In the face of slowing PC sales and the economic pall, Microsoft's fiscal 2009 revenue actually contracted, to $58.4 billion from more than $60 billion in fiscal 2008 — and the company missed its earnings estimate by more than $1 billion.

Fresh Coat of Paint: Artist Ricardo Richey, commissioned by Fortune, spray-paints a street-smartversion of Microsoft'sname and Window's logo on a San Francisco wall.

But the biggest failure under Ballmer's tenure was self-inflicted. Vista was meant to be a wholesale reimagining of Windows, the brand name for Microsoft's operating systems dating back to the early 1980s. Every so often the company unveils a new OS, blandly named for the year of the release (Windows 95, Windows 98) or a geeky abbreviation (Windows XP is short for Windows Experience). Vista had a marketing-friendly moniker, a fancy user interface, new security architecture, a better file-storage system, and much more. More

Box.net CEO Aaron Levie. Photo: Box.net.

Cost-conscious businesses are looking online for IT

By Aaron Levie, CEO and co-founder, Box.net

Something is clearly happening in the cloud. Two major juggernauts – the government and Microsoft – have both recently made cloud-related announcements. The government (hardly ever considered an early adopter) is planning to launch a cloud computing ‘Storefront’ to ease the federal deployment of these online services, with the ultimate goal of streamlining operations and saving money. Microsoft has finally detailed its plans to launch a web-based version of Office, albeit not until next year. More

Randall Stephenson’s business is all about connectivity, which means these days the AT&T chairman and CEO spends a lot of time talking about Apple.

While the company may have an exclusive deal with the maker of the iPhone, Stephenson said don’t expect it to last forever, although he wouldn’t expand further.

When asked if he was completely satisfied with AT&T’s relationship with Apple, Stephenson said, “I don’t think I could get my wife to say that about me so I don’t think I could say that about a business partner.” More

Mobile platforms VP Andy Rubin talks about Android, Chrome, and the smartphone.

The second Google (GOOG) phone in the U.S. had a showcase event last week in San Francisco, and afterward I sat down with Andy Rubin, vice president of mobile platforms at Google.

Rubin believes Google helps consumers

I asked him about Google’s vision for the Android smartphone operating system, whether the search giant is sending mixed messages by promoting both Android and its upcoming Chrome OS, and whether Android is really a good fit for netbooks. Below is an edited transcript:

Q. Android is open and free, so anyone can put it in their devices – phones, cars, washing machines, whatever. But what uses is Google actively encouraging? Are you just focused on smartphones, or are you trying to get it on other types of devices?

A. This is kind of where open source meets business. I encourage high-volume things. A million customers? Not that interesting. Ten million? Not that interesting, but heading in the right direction. A hundred million customers starts getting interesting. So what consumer products have the opportunity to affect 100 million, 200 million, 300 million customers? There aren’t that many. What’s the most successful consumer product on the planet? People used to say the DVD. It’s the cell phone. They’re everywhere. That’s why we focused on the cell phone first – it’s the biggest volume opportunity. More

A sign of things to come? In its Atlanta stores, AT&T is selling the Acer Aspire One for $49 with a 2-year wireless data plan and DSL signup. Image: Acer

PC retail is in rough shape again, and it's about to get rougher.

Evidence of hardship is everywhere. Hewett-Packard (HPQ), the world's largest computer maker, says it's selling about the same number of computers as a year ago, but getting a lot less money for them – sales dropped 19% in the most recent quarter. When Apple (AAPL) reports earnings in July, analysts expect Mac sales to be off as well. And while Intel (INTC) says it's hopeful that its chip sales are bottoming out, chip revenues are lower than they have been in years.

Why are things so bad? The easy answer is that PCs cost hundreds of dollars, and consumers don't have a lot of extra cash floating around these days. Unless your computer has been struck by lightning and given up the ghost, chances are you're holding off on purchasing a new one. One tech industry executive recently confided to me that it's not just U.S. consumers thinking this way – the entire global PC market headed off a cliff at roughly the same time late last year, forcing computer makers to cut workers and rethink their strategies.

In the midst of all that, wireless carriers are poised to shake up PC retail. AT&T (T) announced this week that beginning this summer, it will begin selling small, low-cost Windows XP netbooks from Acer, Dell (DELL), LG and Lenovo in all 2,200 of its U.S. stores. (In case you're counting, that's about twice as many locations as Best Buy (BBY) has.) Rival Verizon (VZ) has already begun selling an HP netbook.

Why buy a computer from a phone company? Price, of course. Sign a two-year wireless data contract with AT&T, for example, and you get $50 knocked off the price of a netbook. Get home DSL service too and save $100. In Atlanta, where AT&T has been testing the deals, the cheapest Acer netbook sells for $49 after rebates.

Sales there have been brisk enough that AT&T execs are confident that cheap laptops will lure customers nationwide the same way cheap phones have in the past. And the deals will only get better: It's easy to imagine that in a year or two, customers who sign up for two years of voice and data service (at a cost north of $100 per month) will leave a store with both a "free" phone and a "free" computer. Exciting, huh?

While this is great news for netbook-loving consumers, it's a downright scary prospect for PC makers. If the phone business is any guide, carriers will fuel demand for the cheapest and least profitable computers out there, and put pressure on traditional PC stores to sell low-price PCs. And that will force tech companies to work harder to lure shoppers toward more powerful (and more expensive) hardware.

That's not an impossible upsell, as the iPhone and BlackBerry (RIMM) have proven in the phone business. But it's yet another challenge the PC gang doesn't exactly need right now.

Cisco CIO Rebecca Jacoby

Even in these tough economic times, tech giant Cisco offers employees some pretty sweet benefits: Employees can visit on-campus doctors and dietitians, drop off dry cleaning, or get an oil change, and now they can pick the kind of computer they want to use at work.

That's right – Cisco has started letting workers choose from a handful of laptops, including an Apple MacBook Pro. Only don't call the program a perquisite. Rebecca Jacoby, Cisco's (CSCO, Fortune 500) top information technology officer, says the initiative, launched last year, should actually save the company money. The fact that employees involved in the pilot program are deliriously happy with it – Jacoby and her peers even get love notes from satisfied road warriors – is a bonus.

Of course, that new freedom requires companies and employees alike to make sacrifices. Since Cisco began offering a choice of machines last June, roughly a quarter of employees have opted for Macs, yet they are pretty much on their own for tech support. (An in-house online community for Mac users gets a little help from Jacoby's department.) Cisco, in turn, has to make a slightly higher upfront investment for the workers who want Macs, which are pricier than PCs.

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Jon Fortt recaps Apple's preview of the next-generation iPhone OS, due this summer. (AAPL) (RIMM) (T) (PALM) (MOT) (NOK) (MSFT)

Since Intel first began cooking up semiconductors, it has taken great pride in its in-house manufacturing chops. If a chip carried the Intel brand, you could be sure it was created in an Intel fab.

Today the pride is the same, but the methods are changing. The Silicon Valley chipmaker on Monday announced a deal that will allow Taiwanese contract manufacturer TSMC to make custom versions of the Atom chip, the first time it's giving another company access to some of its chip cores. How big a deal is this? It's a little like George Lucas agreeing to let someone else make Star Wars movies. (Judging by the most recent ones, that might not be such a bad idea.) More

The world's two largest creators of computer chips are cooking something up together.

On Monday morning, there will be a chip industry summit of sorts: Intel, the world's largest chipmaker, and Taiwan Semiconductor Manufacturing Company, the world's largest chip foundry, will make a strategic announcement at Intel headquarters in Santa Clara. According to Intel (INTC) PR, the execs on hand will be Intel mobility chief Anand Chandrashekar and sales chief Sean Maloney, and TSMC (TSM) CEO Rick Tsai and sales chief Jason Chen.

What are they up to?

They're not saying – but it's not unusual for the two to cooperate. They've been known to work together on setting industry manufacturing standards. Two years ago they announced that TSMC would make WiMax chips for Intel. Intel has also been known to outsource the production of some chipsets and other items that don't require the very latest manufacturing processes. (The companies share more than WiMax chips; Chen ran sales for Intel before he joined TSMC four years ago.)

They're also competitors. TSMC makes chips for a bevy of Intel competitors including Nvidia (NVDA) and Qualcomm (QCOM).

Given that Chandrashekar and Maloney are attending for Intel, I'm guessing this announcement might focus on mobile and WiMax-type efforts. But considering the tough times in the chip industry – Gartner yesterday said it expects chip sales to plummet by up to a third in 2009 – lots of things could be on the table.

Whatever the deal is, it's probably something TSMC needs more desperately than Intel does. With its smaller chip customers swooning, one has to imagine Tsai might cut Intel a pretty sweet deal to get any business the chip giant would like to send his way. (NVDA) (AMD) (QCOM) (AAPL) (IBM)