After months of rumor-driven frenzy, the much talked about 3G iPhone from Apple finally became a reality, promising yet another revolution in the mobile Internet experience. Offering a combination of great user interface with (slow) DSL-level speeds and location-based technologies, the new 3G iPhone is a game-changer.

Those are not my views; they come to use from Ralph de la Vega, president and chief executive officer of AT&T Mobility, the wireless division of San Antonio, Texas-based AT&T. A few hours after the release of the new phone, de la Vega chatted with me about the iPhone, its impact on location-based services, enterprise mobility and of course, the wireless web revolution it will unleash. Here are excerpts from our interview:

Om Malik: What are your thoughts on this new iPhone?
Ralph de la Vega (RDLV): This device is a true game-changer. Why? The immediacy of the data at your fingertips is huge. Imagine, looking up anything, anywhere. It (3G iPhone) allows you to leave your computer at home. It totally and completely mobilizes your data. Before this device you weren’t really untethered, but with this you are. I think people have tried to build a $100 laptop, and here is a $200 phone that can do all that over 3G. It will have a big impact, and will be ubiquitous.

OM: What are the big changes you think it will bring?
RDLV: When I was at the last CIO Forum, I thought people would ask me about lowering wireless prices. Instead I had CIOs asking me about push mail and security on the iPhone. I imagine they were getting questions from people within their company. I think what’s going to happen is that small groups of developers will start writing applications for their enterprise, and this is going to lead to the mobilization of the enterprise like never before.

OM: Do you think today is a red-letter day for location-based services?
RDLV: Absolutely! I think you will see a whole lot of applications using LBS and there are entrepreneurs who are going to be building them. This is such a huge opportunity. I think it will be interesting to see the combination of social networking apps with LBS.

OM: Ralph, as I wrote earlier today, I think the biggest concern is the ability of AT&T to handle the 3G network traffic that would emanate as people start using this new 3G iPhone. What are your thoughts?
RDLV: We have tried to model the usage of the new phone and prepared the network accordingly. We have taken our 2G iPhone usage data and we feel extremely comfortable to be able to deal with the demand. We have a maximum throughput of 3.6 Mbps and soon it will be 20 Mbps. The core of the network is going to run faster as well.

As Steve Jobs said in his speech, our 3G networks already have Wi-Fi like speeds. There are built in checks. As Steve pointed out in his speech, files above 10 MB will be downloaded over Wi-Fi that is fed by broadband connections. I think most average users are just that average and use data accordingly. There are, of course, bandwidth hogs.

OM: It seems like this is a device that is ready for mobile video and there are a lot of applications being developed for it that encourage mobile video streaming. Isn’t that going to overwhelm your 3G network?
RDLV: Clearly streaming video is the largest bandwidth-consuming application, but it is still not clear how many people will view video on it. We will know when we see the data. We have built the network with a lot of capacity, and we have it in control in the short term. So if we have a problem in the future, we will have the data which we can use to fix the problem.

OM: What are you doing about the bandwidth hogs?
RDLV: We are letting the customers decide the usage.

OM: Has there been a change in the cost of data plans?
RDLV: The data plans are different on the 3G iPhone vs. the 2G iPhone. Consumers will pay $30 a month every month, while enterprises will pay $45 a month. This is what you pay us on other PDA devices such as BlackBerry Curve. The SMS messages are not bundled anymore, and you pay for what you want. Again, the prices are based on what you buy.

Related Link: Robert Scoble interviewed John Donovan, the new CTO of AT&T, about the 3G iPhone and a while slew of topics. Have a look on Scoble/FastCompany.tv web site.

Apple has acquired PA Semi, microprocessor design firm for $278 million in cash, reports Forbes’ Erika Brown. PA Semi was started by Dan Dobberpuhl, a chip designer closely associated with Alpha and StrongARM chips developed by Digital Equipment.

The decision to center the iPhone design around a chip that Apple could own marks a significant strategic choice by Apple Chief Executive Steve Jobs, and is aimed at ensuring Apple can continue to differentiate its flagship phone as a raft of competitors flood the market. According to a source affiliated with the chip company, Jobs and Senior Vice President Tony Fadell led the tiny group of executives who spearheaded the acquisition, which included negotiations that took place in Jobs’ home.

Apple’s decision is going to post a problem for Intel Corp. and its newly announced Atom chip. It is unlikely that Intel’s chip was going to find room in the handsets made by some of the larger players.

Chip industry insiders believe that Intel was betting on an Apple win to gain scale for Atom which in turn would allow it to dominate the “portable internet device” market. iPhone and iPod Touch are the early leaders in the PID category, and are unlikely to cede that spot for near foreseeable future.

PA Semi had designed a 64-bit dual core chip that consumer between 5-to-13 watts running at 2 gigahertz, making it a good chip for the PID category. So far, PA Semi has found takers in telecom equipment makers.

Beyond3D puts context on the news announcement. While they are mostly right about everything, I don’t think you can rule out the iPhone argument.

• Bloomberg: Yahoo Defense May Fail to Repel Hostile Microsoft Bid
• Apple Web site: Apple releases Mac OS X 10.5.2 Update
• Reuters: Nokia Adds Google Search to Handsets
• Broadband Reports: Competition Still Not Lowering TV Prices
• Reuters: RIM May Offer Touchscreen BlackBerry
• NYTimes: Wide BlackBerry Outage Reported
• Forbes: A Challenger For Google’s Android

A bounce in technology stocks, at this point, is inevitable. With the S&P’s tech sector down 10 percent so far this year — and a bearish-looking 20 percent since last summer — it’s just a matter of time before the sellers get tired and others step in to buy, if only for short-term gains.

That leaves two questions: The first is when will the bounce come? And more importantly, what happens then? Is it the proverbial dead cat? Or is it a chance to get in on a sure-fire recovery now that the worst is past? Without a doubt, there’s as much uncertainty now as there has been in a while, and an absence of indicators tends to make us read the worst into the vague gloom. Further, there’s plenty of gloom to read into.

After a slight initial pop, the Nasdaq has edged back down into negative ground as I write this Wednesday. Even a small decline today would be significant. According to Paul Kedrosky, that would be the longest losing streak for the Nasdaq since May of 1984.

After less than six trading sessions, a lot of big names are bruised. Shares of Amazon.com (AMZN) are down 11 percent, Apple (AAPL) is down 13 percent, Intel (INTC) has lost 16 percent and Research In Motion (RIMM) is off a whopping 17 percent.

Since I looked at the tech sector through the lens of bellwether Apple, lots of news has come and gone. Very little of it was good, and there were inside that stream some particularly unsavory morsels. AT&T (T) stunned analysts when an exec said people aren’t paying their phone bills. Their phone bills — one of the last items normally trimmed from pinched household budgets. Now it could be that, rather than having the luxury of both a wireless account and a land line, people are simply foregoing one in favor of the other, but news like that doesn’t inspire confidence.

Then it was revealed that a director who has sat on Dell’s (DELL) board for 13 years sold half his holdings in the PC maker. The director, Michael Miles, is also on the boards of both Time Warner and the airline AMR, neither of which are exactly the kinds of stocks that people are stuffing their portfolios with this month. But he didn’t touch any of those shares (assuming he is a major holder).

Meanwhile, tech retail, a mixed bag in 2007, is so far notably less mixed in 2008. Even some of last year’s better performers are having a rough time. Bear Stearns downgraded Best Buy (BBY) Tuesday, and when GameStop (GME) reports that it’s raising guidance on fourth-quarter sales, it’s stock gets beaten down.

Developments like that make you wonder about the upcoming earnings season. As tempting as it is to think that the worst selling is behind us — that there could even be a bounce when numbers are reported — it doesn’t look like that’s going to happen. Broadband provider Centennial Communications (CYCL) said Tuesday it swung to a profit and matched the penny-a-share earnings of a year ago. But it fell short of the Street’s expectations and was slammed 17 percent in one day.

If this is a taste of what’s coming, we’re in for a rocky ride. A lot of stocks rallied last year when analysts were underestimating profit growth. If tech earnings prove to be worse than analysts have been forecasting, the stock losses seen so far could get worse.

Many tech giants have been benefiting from strong consumer sales, but if this year’s CES is any indication, there aren’t a lot of innovative new ideas out there right now. Who’s going to line up to buy a 150-inch plasma TV in a recession?

There is still Macworld. The buzz is that Apple has some interesting announcements planned, but it’s hard to imagine anyone that could match the frenzy sparked by the iPhone last year. The market needs some genuinely good news to get us through this long winter.

Bolstered by the news of upcoming movie rentals via iTunes, hot selling Macbooks and iPod Touches, Apple just blasted past the $200 a share. So where does it go next?

“There’s so much growth to look forward to for the iPhone,” said Stephen Coleman, chief investment officer at St. Louis-based Daedalus Capital LLC, which owns about $7 million of Apple shares. He projects the stock will hit $600 in 18 months. (via Bloomberg)

Seems like a case of too much egg nog! Or Not! This has been a good year for Apple believers - the stock is up a whopping 138%. In comparison, Google, the other stock market darling is up a mere 54%. But you already knew that!

Sprint Nextel’s (S) rough patch is turning into a highway from hell. The exit of CEO Gary Forsee, questions about its plans for a WiMAX network and its aborted partnership with Clearwire (CLWR) have provided fertile ground for all sorts of rumors. Rich Tehrani reports on one such rumor: Google buying Sprint, then spinning out the phone business.

Ludicrous? Maybe. Maybe not. I don’t have first-hand knowledge as to whether or not this rumor is even remotely true, but there is one way it could all make sense.

Sprint spins out its WiMAX business. Let’s call it — for lack of a better name — 3rdPipeDream Inc. Sprint owns a big chunk of equity of this company, mostly because it owns a lot of spectrum and has built out some parts of the network. 3rdPipe then invites titans of Silicon Valley to invest. Since it is going to cost Sprint around $5 billion to build out its WiMAX network, it is safe to assume that 3rdPipeDream is going to need more than $5 billion.

Google (GOOG), Intel (INTC), Cisco Systems (CSCO), Apple (AAPL) and a whole slew of Silicon Valley companies that need the “third broadband pipe” could team up and invest in the new company – but on a premise that 3rdPipeDream will operate as a wholesale wireless broadband network, following the rules similar to the ones proposed by Google for the 700 MHz auction. Most of these companies are sitting on mountains of cash and could put it to good use by breaking the broadband duopoly.

Those in Silicon Valley who have often lamented about not getting an even (broadband) playing field can now put their money where their mouth is — in the third pipe. A total investment of $3 billion could help the new company raise an equal amount in debt, backed by anchor tenancy of, say, Google, which is desperate to extend its reach to the wireless domain.

Google CEO Eric Schmidt had previously indicated that his company wouldn’t hesitate to participate in the 700 MHz wireless spectrum auctions, where the opening bids could be in the $5 billion range, so an investment in this WiMAX-only company isn’t that unreasonable, especially if it can offer ad-supported wireless services.

Similarly, Intel, which had invested $600 million in WiMAX service provider Clearwire, could invest in this hypothetical company because it will help sell chips. Maybe Intel can help convince Clearwire to throw in its lot with 3rdPipeDream. Cisco and Motorola (MOT) and others have their own vested interests — selling equipment, for instance. And Steve Jobs & Co., when given access to true wireless broadband, could turn iPod Touch into a truly disruptive device.

Now what are the odds of this happening? As high as A-Fraud returning to the third base in the Yankees stadium.

As for Sprint, this could bring some clarity to its business. (Talking about spinning off their businesses, the company should also consider spinning off its iDEN business which could serve the government and related entities such as police and fire departments. With this network out of the way, Sprint should refocus its attentions on consumer wireless or try and sell its CDMA business to Verizon.)

Foot Notes: Poke: A poke is a way to interact with your friends on Facebook. Superpoke: Why just poke when you can pinch, hug, tickle, pwn or even throw sheep?

This will be good news or bad news depending on how you feel about Microsoft, but the software company seems to be roaring back. And it has nothing to do with its overpriced, over-hyped 1.6 percent stake in Facebook.

Instead, it has more to do with the earnings report it delivered Thursday afternoon for its fiscal first quarter that ended Sept. 30. Beating the Street by six cents a share (its biggest earnings surprise in a few years), while showing $1.2 billion more in revenue than analysts had expected and a significant improvement in its operating margins (to 43 percent from 41 percent a year ago).

Not only was that good, it was way better than Wall Street seems to have been expecting. The stock was up at $35.50, as of this writing, in after-hours trading — surging 11 percent in less than an hour after Microsoft (MSFT) reported earnings. Here’s why I think that performance is so impressive.

First, it launches the stock back to a level it hasn’t seen since July of 2001 — more than six years ago. Microsoft reached as high as $31.84 on July 19 of this year. But the last time the stock closed officially above $35 was back when the tech bubble was still deflating. If Microsoft closes above $35 Friday, it will mark a six-year odyssey back to that level.

But that doesn’t mean Microsoft will necessarily be overpriced again. Its net profit for the last 12 months total $14.9 billion, or three times its net income six years ago. In other words, Microsoft’s stock may soon be back at its 2001 level, but its profits have tripled in the meantime. Its after-market market value of $333 billion is only 22 times that profit.

Second, Microsoft had a $300 billion market cap at the end of Thursday, before its earnings report, about 150 percent of Google’s (GOOG) and roughly double that of Apple’s (AAPL) on the same day. That’s a lot of market cap, and to get it to rise 11 percent means pumping in $33 billion dollars.

As the chart from Google Finance shows, Microsoft’s stock rose to $35.81 from $32.04 in 45 minutes. In that frenetic three-quarters of an hour, when tens of millions of shares were traded, the value of the stock was rising an average of $12 million a second.

So this is a bigger vote of confidence for Microsoft from Wall Street than the headline figures may indicate. Everyone was expecting a pretty strong quarter from Halo 3 and Xbox 360 sales, but the actual numbers were even stronger. Improbably, 85 million copies of Vista have been sold.

(One weak spot remains online advertising, which thanks in part to investments in aQuantive and other properties, posted a loss of $264 million.)

This quarter may mark a turning point when investors stopped looking at Microsoft as an aging, arthritic giant that could at best hope for maintaining slow and steady profits with the occasional if beefy dividend thrown in. After all, EPS grew 29 percent, to 45 cents a share.

That profit growth rate may be a league below Apple and Google. And Microsoft is still far from being an innovation powerhouse like either of those companies. But it marks a significant improvement from the Microsoft of a few years back, when it would have sounded odd to say what we know today: Microsoft is alive and well, and still in the race.

Remember when Apple’s (AAPL) stock topped the $100 mark, powered by another stellar earnings report? It was only six months ago. Judging from the rapturous reaction in the aftermarket today to Apple’s most recent earnings report, the stock is close to racing past the $200 mark.

Apple closed active trading Monday at $174.36. Following release of its fiscal fourth-quarter results, it shot up as high as $187.76. After market trading can be volatile, but it can often, if not always, be a good gauge of how the stock will fare in official trading the next day. It’s a pretty safe bet Apple shareholders will have a pretty good day Tuesday.

Apple has turned into one of those superstar stocks that seem incapable of disappointing investors. Just add money and watch your returns grow. The last big superstar stock in the tech firmament was Google (GOOG). But Apple seems to be in a higher class of supernova than even Google.

Ever since Google’s first day of trading back in the summer of 2004, Apple’s stock has outperformed Google so that, as of the close of trade Monday, an investor who bought Apple in the stock market on Aug. 19, 2004 would have made twice as much as an investor who invested the same money in Google shares.

A lot of people have been talking about how Google’s shares have started to rally again after trading in range of $400 a share and $500 a share for months. In the last two months, Google’s stock has risen 27% to an all-time high of $658.49. In that same period Apple has risen 33%. Remember, that’s after Google’s post-earnings rise and before Apple’s.

So when will Apple see a slowdown the way Google’s did earlier this year? It depends. There really isn’t a lot in Apple’s business operations to suggest a dramatic slowdown in its business. As the earnings call showed, iPods and iPhones are spurring Mac sales, which are likely to spur more upgrades, whether to Leopard or to future generations of iPods and iPhones, and so on.

I think any danger to Apple’s stock is more likely to come from investors themselves. Once a stock is labeled a sure bet to rise, the speculators come running. The top graph above shows Apple’s P/E ratio creeping higher in recent months. Speculation could drive Apple’s price much higher in the near term but add downward volatility longer term. A stock split would only add to speculative volatility.

On the other hand, there is the value of historical perspective can provide. Apple has had Microsoft on the run in key areas. So has Google. But if you compare both those stocks to Microsoft since the 1980s, you get the sense that both of them have a long way to run.

Now that’s a lot of catching up to do.

By M.R. Rangaswami, publisher of SandHill.com and co-founder of Sand Hill Group

They say that youth is fleeting. In the enterprise software industry, the youth are fleeing.

One need only look at the hairlines of today’s software leaders. The current wunderkinds are not looking to create the next wave of corporate computing applications, but are instead gravitating toward emerging fields, such as web 2.0, biotech, and anything “green.”

Bill Gates was 19 when he founded Microsoft (MSFT). Steve Jobs started Apple (AAPL) at 21. Even Marc Benioff was in his 30s when he founded Salesforce.com (CRM) — and at 42, he remains one of the industry’s youngsters.

Software companies need to do more to attract the next generation of business leaders who will drive the evolution of the industry for decades to come.

Software’s Aging Leaders

Here’s what opened my eyes. I looked around at the attendees of our Enterprise 2007 conference this summer and was pleased to see many of the enterprise software industry’s leaders represented, including CEOs, VCs, professionals and analysts.

But then I did a double take: The average age of this elite group (including yours truly)? 50 years old!

Steve Ballmer, Larry Ellison, Henning Kagerman, Dave Duffield…all of them are solidly in middle age. A tremendous brain trust to be sure, but who is going to take the reins and lead the industry into the next era?

The next eye-opener? In a survey given out at the conference, these highly-successful industry leaders were asked whether they would advise their college-aged kids to start a career in the software business. More than half said they would, but nearly a third said they wouldn’t!

So where are all the Gates and Jobs of today? Many young entrepreneurs continue to receive venture backing for software companies –- in fact, software regained its title as the leading venture investment category during the second quarter. Notably, however, nearly as many are receiving backing to go into biotech or greentech or other emerging fields.

And within the software space, young business leaders are choosing web 2.0, open source, SaaS or consumer applications over traditional business apps. These are all attractive fields, to be sure, but the enterprise software elephant in the corner is a $600 billion industry waiting to be fed.

The new guard of software leaders operates differently than the old guard, usually with far less capital. And they are tuned into the online culture like no 50-year-old can be: they’ve grown up with it, and as such will be able to bring the consumer online experience to the corporation with ease.

Before I get too much hate mail about age discrimination, and in light Google’s recent legal troubles, I want to be clear that I’m not advocating hiring younger people over older people. I’m talking about the need for people with new skills and new ideas who are young enough (in years) to ride out the next 10 or 20 years of industry fluctuations.

The fact is that unless the software industry receives an influx of new talent, it will be difficult for the 50-year-olds to keep their companies’ relevant in the next era.

How to Rejuvenate the Industry

It is time for enterprise software companies and their investors to take steps to make the industry a more welcoming and attractive place for young workers. Here are some of my thoughts on how to attract the next generation of leaders:

• Make Room at the Top – It may be time for many longtime software company leaders to simply step aside. The same goes for members of the board. If Bill Gates can do it, anybody can.

By making a gradual transition (such as the one taking place at Microsoft) and tapping the right successors, software companies can receive the benefits of a fresh strategic perspective and a new outlook.

• Mentor Young Executives — Much of the brain trust of the enterprise software industry is rapidly approaching retirement. The only way to recapture this collective knowledge is to impart it to the next generation of executives.

While it is nice to think that today’s young execs can learn by watching, the pace of today’s business environment may make it difficult. Companies seeking to preserve this insight should consider a mentoring initiative – either formal or informal – to impart to its younger execs.

• Re-establish Entry-Level Positions — As the software industry evolved over the past 10 years, a wide variety of entry-level jobs in both business and engineering disappeared. Some jobs were outsourced, some were offshored, and some simply dried up during the economic downturn, never to be re-established.

There is no way that today’s software vendors will be able to promote from within and tap into next-generation thinking if they do not slot a significant number of entry-level jobs for new workers. These positions should be on both the technical and business side.

• Step Up Marketing to Universities — There is a perception among college graduates that all technology jobs are moving overseas. Anyone who has recently tried to find an engineer in the San Francisco Bay Area knows that nothing could be further from the truth.

The job market for software developers is almost as tight as it was during the dot-com boom. Engineering graduates will have their pick of companies, and industries, to choose from.

The software industry associations and the major companies themselves must raise their profiles in graduates’ minds. Efforts such as job fairs and promotions at universities can help achieve this.

• Develop Cross-Industry Recruiting Tactics — Recruiters are famous for tapping consumer packaged goods leaders to run tech companies – and for convincing former tech execs to run “green” or biotech companies. It is time for the software industry to expand its recruiting pool.

As other industries work to recruit the up-and-coming leaders that the software industry used to attract, the software industry needs to fight back. TCS is trying to overcome some of the talent crunch in India by recruiting talented non-engineers from other scientific fields for training as developers or other much-needed staff. The ramp-up is longer, but the results so far have been positive.

• Make the Industry a More Attractive Place to Work — In many ways, the software industry has always been one of the best fields to work in. Today it’s even better.

The business environment is fast-paced and rapidly evolving. There is the opportunity for international travel, rapid advancement, telecommuting and financial rewards. The faster the industry can get the word out about these benefits, the better.

• Set Up Internal, Innovation-Driven “Startups” — For many established vendors, incorporating the energetic and fast-paced climate of a startup is difficult to maintain as a company grows to have hundreds and then thousands of employees.

Many vendors, such as Motorola (MOT), have created internal innovation centers to foster the growth of new ideas, products and businesses. The atmosphere is more likely to attract a new generation of leaders.

I believe the software industry can do more to prevent the “youth” drain that I see happening today. What do you think? Is the software industry “older” than any other fast-growth industry? Is the entire concept of enterprise software fading away? Can vendors do anything more to attract new college grads? I welcome your feedback.