Jeff Bewkes

People have been wondering for a long time when Time Warner would sell off Time Inc. And for a long time, whenever anyone asked CEO Jeff Bewkes or senior management about the publishing company, they’d inevitably say something like “we like it, we’re keeping it.”

But when analyst Jessica Reif Cohen asked CFO John Martin the same question back in September, he gave a different answer, and people in and outside of Time Inc. took notice. Here’s the excerpt of their conversation at Bank of America Merrill Lynch’s media conference (I’ve highlighted  a few key parts):

Cohen: In June, News Corp announced plans to separate the publishing business and other small entities from the core media and entertainment franchises. In the second quarter, Time Inc., reported, or your publishing unit reported revenue down 9%, advertising was down 7%, subscription revenue 11%. I mean this is not really a great numbers, so they really kind of dragged down the overall company growth. I mean, would a separation of Time Inc. from your cable network and studio business make sense at some point?

Martin: I wouldn’t rule anything out at some point, but I don’t think it’s exactly synonymous Time Inc. to whatever News Corp’s decision was with respect to particularly newspapers. I mean, Time Inc. is a company that is dealing with nationally branded environments and transitioning to digital and there’s a lot of commonality between the strategy and the issues that we’re facing in our TV and home entertainment businesses as there is in our publishing businesses – probably more commonality now than there has been in the past.

Having said all of that, I would also – I think it’s fair to say we’re disappointed with the results at Time Inc. It’s being driven by the industry, not by the performance of the management, and so we’re proud of the management’s execution against what is a really, really difficult industry backdrop, but I would say – and I think our past is an indicator of this, given what we’ve done with Time Warner Cable and AOL – is that our job is to figure out how to value maximize. And so I wouldn’t rule anything out in the future, but right now, we are working hard and Laura Lang, the new CEO and her team, is working hard to figure out how to meaningfully transition that business to be a multi platform branded environments business, where we’re going to have to continue to obviously make sure that the costs match up against the revenue trajectory as well.

We’ve got a lot of great things going on at Time Warner, and we’re really proud of and while we’re proud of the performance of our publishing unit, within the publishing industry, I think it’s fair to say that we’re disappointed with the secular dynamics in publishing right now.

Translation: We’re in the TV and movie business, and we happen to have a publishing company. We’ll say good things about our publishing company, but please notice that we’ve already sold off our cable pipe business and our Internet business. Meanwhile, we’re going to have to cut costs.

Last week, Time Inc. took care of the cost-cutting part. So today’s report, from Time Inc. publication Fortune, that Time Warner is talking to a “serious buyer” about offloading most of its Time Inc. titles, including People, shouldn’t be a huge surprise.

Since we’re all speculating about buyers, let me suggest that you certainly don’t have to be in the publishing business to be interested in buying most of Time Inc.

The magazine industry is in trouble, but the world’s biggest magazine publisher still makes a lot of money — $420 million in operating profit last year. Wouldn’t be shocked to see a financial buyer who thinks they can cut more costs and pocket a lot of the profit. [UPDATE: The New York Times reports that Meredith, the publisher that puts out titles like Better Homes and Gardens, is the mystery buyer. Still think that "non-strategics" will take a looksee.]

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Users enter their 401(k), IRA, brokerage and adviser account information on the site, which then pulls together all of the investments into a single dashboard. From there, it can identify high brokerage fees, bad investments, hidden fees or overly expensive advisers.

“Merrill Lynch, Morgan Stanley and other wire-house firms are a real rip-off,” said SigFig’s co-founder Parker Conrad. “Their product is poor and expensive … The wire-house firms are going to hate us. We are hoping to irretrievably break their business model. That’s our goal. If they are shutting down their wealth management programs, then we’ve succeeded.”

While those are lofty ambitions, today marks the first day of its invitation-only service. (AllThingsD readers can click here to gain access.)

Based on results from a closed beta, the company is hopeful it can make a big impact quickly.

It says it is finding that one in five people with an adviser had below-average performance and above-average fees, and that an average user on the site can save $5,000; up to $8,000 if they trade frequently.

“Literally, we have one user who could buy a new Ferrari every year just based on trades,” Conrad said.

SigFig originally started out as Wikinvest, which allowed users to track their financial portfolios. A little over a year ago, the company began to build SigFig, and has been operating in an alpha with 5,000 members. Over the next few weeks, it will let in another 500,000 users.

SigFig is part of a growing trend in Silicon Valley, where technology veterans are trying to make investing easier using the Internet.

Co-founder Mike Sha said that through its members, SigFig has access to $30 billion of assets from 65 financial institutions. The company uses that data — in aggregate — to identify what brokerages are selling and how much they are charging. In that way, the investment service uses a sort of crowdsourcing to find the best answers.

He said one of the most common ways to save money is to identify a mutual fund with a different brokerage that has lower fees.

“People are shockingly neglectful on how they manage their money,” Sha said.

SigFig is free to use, and makes money off of commissions, but oftentimes it isn’t paid at all, if the best recommendation doesn’t have a commission. The company, which has nearly 40 employees, has raised $8 million in capital from DCM and angels, including Jason Krikorian of Slingbox and Mark Britto of Boku.

Given the events of the past 18 months or so — two new CEOs, a brief flirtation with a significant spinoff, the failure and then marginalization of an important consumer product and an unpopular and expensive acquisition — it’s probably no surprise that morale among employees at Hewlett-Packard has dropped significantly in recent months.

But now, many employees in HP’s mid-tier management ranks have something new to grumble about. Some 700 to 900 HP employees who have been participants in a three-year-old HP stock bonus plan learned right before the holidays that they would not be receiving the payout of shares they expected.

The program concerns what HP refers to as PRUs, or Performance-based Restricted Units, and is described in detail in HP’s 10-K and proxy filings with the Securities and Exchange Commission. It was created both as a performance-based bonus and also as a retention plan for certain HP management-level employees at the vice president level and higher.

In a Dec. 12 internal HP email obtained by AllThingsD, employees participating in the program were told that they wouldn’t be receiving a payout for 2011, and that shares accrued during HP’s fiscal years 2010 and 2009 would also be lost.

To explain:

Under the terms of the program, employees received grants representing hypothetical shares of HP stock that were to have been paid out at the end of the three-year period ending Oct. 31, 2011. Had HP met the stated cash flow and shareholder return goals, the shares would have been paid out to employees sometime in December.

Instead, employees were told that they would receive no payout from the PRU program at all, not for 2011, nor for 2010 or 2009.

This is, of course, exactly how the PRU program was to work: With HP’s goals not met, there was no payout to give. And while other equity-based bonuses and grant programs remain in force, for employees in the mid-level ranks — not those in the senior ranks already earning half-million-dollar salaries or more — PRUs represented an important benefit.

It’s not clear exactly how much HP would have been required to pay had the company met the PRU program’s requirements. The company’s most recent 10-K filing said that it had “$82 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value,” but now that the payout has been canceled entirely, it no longer has to account for that amount, nor for any previous year’s PRUs.

Whatever the total amount involved, affected employees who stood to receive PRUs are seething about how and when they were told they wouldn’t be receiving them.

The email, delivered to certain managers on Dec. 12, contained instructions on talking with subordinates about their annual performance review and the rewards they could expect. The subject line was: “Deliver the One conversation.”

It reads, in part:

Managers with FY09 Performance-based Restrictued Unit (PRU) Award Holders

We have the final performance results for the FY09 Performance-based Restricted Unit award, which was based on HP’s performance from FY09-FY11. As you will recall, the performance metrics for the FY09 PRUs were:

1. HP’s annual cash flow from operations as a percentage of revenue for each of FY09, FY10 and FY11, and

2. HP’s Total Shareholder Return (TSR) for the FY09-FY11 period relative to the S&P 500

As a result of the change in HP’s stock price over the three-year period, the TSR requirements were not achieved, and no shares will be released from the FY09 PRU award.

Of course, we are very disappointed that there is no payout this year from this program, and you have specific management actions to communicate the final disposition of this grant for FY09 PRU award holders. The actions are:

– During the One Conversation, you will also need to address the outcome of the FY09-11 PRUs with employees on your team who are FY09 PRU Award Holders

– Please review the FY09 PRU Talking Points and PRU FAQs [Here the email contains links to internal HP documents I have not seen. -Ed] to prepare to have this discussion with your affected employees, who are listed below: [Here the printed copy of the email I received has several listed names blacked out.]

For any other questions about FPR, please ask Contact HR.

Regards,
Evan Wittenberg, VP, Global Talent

Stan Dunlap, VP, Global Rewards

And here’s some more detail about how the PRU program worked, taken from HP’s 10-K and proxy filings:

HP employees who participated in the PRU plan could track the accrued amounts of their PRUs on a Merrill Lynch Web site. I talked to two sources, both of whom had accrued PRUs worth between $100,000 and $200,000 for fiscal 2009 and 2010. Other less senior employees who received PRUs would have accrued between $20,000 and $50,000 in their accounts.

One source told me that as rumors began to circulate that PRUs would not be paid for 2011, most people assumed that the accrued amounts for 2009 and 2010 would still be paid. How wrong that assumption was became apparent on Monday, Dec. 11, as the amounts in their Merrill Lynch PRU accounts plummeted to zero. As recently as Dec. 9, the prior Friday, the value of the accrued PRUs for 2009 and 2010 were still displayed.

HP CEO Meg Whitman discussed the decision not to pay out PRUs in a conference call with HP’s top 900 executives days later. According to people who were on the conference call, Whitman primarily blamed the economy.

Despite the fact that HP followed the PRU program’s provisions correctly, affected employees are grumbling that management has “crossed a line.” As one source put it to me, revealing the decision during the weeks leading up to Christmas was “unconscionable.”

“If they will cross this line now, there’s no line they won’t cross later,” said one source, a current HP employee who asked not to be named. “They could have played straight with us and told us this was coming months ago. The way they’ve done this is not in keeping with the HP way.”

The decision is hurting morale at a time when HP needs to hold on to its people. One source, who left HP recently for another company, says he is routinely being peppered with resumes from HP employees looking to jump ship.

Update: An HP spokesman says of the PRU program that compensation is tied to performance and the 2011 fiscal year wasn’t a good one for HP. Still other bonus programs did pay out. “High-performing employees were still eligible for salary, stock and bonus awards that year.”

As to the timing of the decision, he said since HP’s fiscal year ends on Oct. 31, it’s natural that compensation decisions fall in December. “That’s the time every year that we do raises and award bonuses. That is when these things are announced.”

Of course, many of the affected employees are blaming HP’s prior generation of management for not meeting results, as well as its board of directors. HP shares fell considerably during the 11-month period that Léo Apotheker was CEO, and it was on his watch that the company shook the confidence of investors, as it missed quarterly earnings targets three times in a row.

This probably won’t make them feel any better, but Apotheker is affected by the loss of PRUs, too: Under terms of his separation agreement, Apotheker was to have received 424,000 PRUs which on paper would be worth $12 million and change, given Monday’s share price. But according to his contract on file with the SEC, his PRU grants were made under the same rules as those made to other employees. That means they’re gone, just like those of other affected HP employees.

Personal Capital’s CEO, Bill Harris, who headed up Intuit and PayPal previously, is unveiling his latest company today, which melds technology with financial advisory services.

He says the goal is to bring the decades-old business of managing money to the masses, by replacing fancy offices and golf club memberships with software and video chatting.

“I think we are going to see a radical deconstruction of financial services over the next decade that may be similar to what’s happened to the media or GM,” he said. “It doesn’t mean they will go away, but they will look astonishingly different. That spells tremendous opportunity. It’s really difficult to take a large company with established ways of doing business and change.”

On the surface, it doesn’t look like Personal Capital would have a chance against Merrill Lynch, Charles Schwab, Fidelity or Edward Jones.

It has zero clients, 40 employees, zero branches, $27 million in capital and obviously a long, long way to go. Harris admits: “I bet Wells Fargo or Schwab has 1,000 engineers for QA (quality assurance) alone,” but he counters, “We are better off than they are because we can move quickly.”

In a demonstration, Harris walked me through the site, where you can log in to all of your various bank accounts and brokerage accounts.

By doing so, Personal Capital will be able to see everything in one snapshot, so it can tell you that you are invested 79 percent in U.S. stocks, or if you have too much cash. You can even drill down to see how much money you spend at Amazon on a monthly basis, or on a category like groceries.

All of these tools are free, but users will have to pay for the advice — if they should want it.

Harris said the tools show you what you have, but the advice will tell you what to do if you are over-invested in U.S. stocks, or in a particular company.

“Most people have no idea and it’s the most important financial decision that you have to make,” he said.

The advisers will also help you eliminate fees that you are currently paying for mutual funds and come up with a long-term plan.

Personal Capital charges less than 1 percent of all the assets it is managing a year, which is below other brick-and-mortar businesses, he says. Additionally, the sales people don’t work on commission, so their interests are aligned with the client.

“I’m 55, and in some ways this is the culmination of my career,” Harris said. “I’ve done so much in financial technology over the past 20 years. … All of it has been pieces of the puzzle.”

Personal Capital is not the only one in Silicon Valley going after Wall Street.

Harris is also an adviser to Wikinvest and PageOnce.

PageOnce is building mobile applications to help people track their bills. Similar to Personal Invest, Wikinvest is building software to help users manage assets across multiple accounts. But instead of using advisers to make recommendations, it will eventually provide tips using algorithms to decide what is cheaper or more lucrative based on your holdings.

“I would argue that nowhere near enough is being done,” Harris said. “If you look at finance overall, it’s a huge and vital part of the American and global economy, and finance is one of the largest industries in the world. It’s up there with housing and autos and medicine. But when I think of all the industries where the Internet, or connectivity or mobile, has changed everything, it could be even more transformed.”

It’s easy to get Harris up on his soap box, but Michael Sha, the CEO of Wikinvest, will join him.

Sha says the irony in the industry is that the more you pay for financial services, the lower your return. Still, it’s not the aim of Wikinvest to replace the big brokerage houses. Its users will need them to make a trade.

Here’s a video of Harris, wearing a jacket and displaying the polish of Wall St.:

Bill Harris Overview from Personal Capital on Vimeo.

Look instead on the market’s margins, where a new set of tech companies is racing to attract public investors before the warm, buzzy feeling wears off.

That’s where a curious document was released Friday afternoon: The initial-public-offering papers for a company called Skullcandy, Inc., issued by top-tier underwriters at Bank of America-Merrill Lynch and Morgan Stanley.

You probably try to avoid things called Skullcandy. Your kids think otherwise. Lately, they may have been pestering you for a pair of Skullcandy headphones for their iPhones. These headphones are typically stamped with bright colors and large skulls, presumably to enhance parental annoyance.

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“We think the rest of the studios will see the light and get on board pretty fast,” Steve Jobs said earlier this month of the TV studios wary of its new 99-cent iTunes TV rentals initiative. And while it’s never wise to bet against the Apple CEO, it’s beginning to look like “pretty fast” was an optimistic choice of words. Because in a flurry of public comments recently, a growing number of TV execs have decried the 99-cent rental model, which they say undervalues their content.

At the Goldman Sachs Communacopia conference last week, Viacom (VIA.B) CEO Philippe Dauman said of it, “The 99-cent rental is not a good price point. It doesn’t work for us. We value our content a lot. We don’t think Apple has it quite right yet.”

And during his appearance at the conference, NBC Universal CEO Jeff Zucker said pretty much the same thing. “We do not think 99 cents is the right price point for our content,” he argued. “We thought it would devalue our content.”

Then there was Warner Bros. Entertainment Chairman Barry Meyer, who trashed Apple’s (AAPL) effort at the
Bank of America/Merrill Lynch 2010 Media, Communications & Entertainment Conference. “We just don’t think the value proposition is a good one for us,” Meyer said, adding that he’d rather sell season passes to the studio’s TV series and $1.99 and $2.99 per-episode downloads than “open up a rental business in television at a low price.”

And now Time Warner (TWX) CEO Jeff Bewkes has come out against 99-cent iTunes TV rentals. Speaking at the Royal Television Conference in London, Bewkes echoed the comments of his colleagues, warning that the new model Apple’s pushing will threaten sales of TV shows to network television. “How can you justify renting your first-run TV shows individually for 99 cents an episode and thereby jeopardize the sale of the same shows as a series to branded networks that pay hundreds of millions of dollars and make those shows available to loyal viewers for free?” he asked. “These new entrants must meet a few criteria: They must provide consumers with a superior TV experience, and they must either support or improve the overall economics that funds and creates the programming in the first place.”

Early reviews suggest that Apple has met Bewkes’s first criteria, but given the statements above it’s looking like it may take a bit longer than expected to meet the second, or convince the studios that it has.

After Russia-based Internet investor Digital Sky Technologies got $388 million in a stock-swapping deal with South Africa media giant Naspers–coming after an earlier $300 million investment from China’s Internet behemoth Tencent–BoomTown dialed up DST partner Alexander Tamas in London to interview him about the implications.

This developing international spiderweb of digital and media companies begged the question of what DST might do with all this new dough, especially since it has created quite a splash over the last year investing massive gobs of money in high-profile, social-focused U.S. Internet companies.

That has included, most prominently, social networking powerhouse Facebook, as well as Groupon and Zynga.

Actually, said Tamas, the money is for expansion of DST’s core businesses in Russia, Poland and the Baltics–in email, social networking, gaming and entertainment–at units such as Mail.ru, which was co-owned by Naspers and DST.

In essence, said many analysts, it will simplify its ownership structure, and could eventually lead to an IPO for DST.

For a 30 percent stake in DST and the $388 million, Naspers forked over its 39.3 percent stake in Mail.ru into DST.

“The idea was for us to be able to completely control our Russian portfolio,” said Tamas, part of a series of moves which included its recent purchase of AOL (AOL) instant messaging unit ICQ for $187.5 million in cash. “We wanted 100 percent at one company.”

Also a goal: To better link its services with those in China, owned by Tencent, which invested $300 million in DST in April, giving it just over a 10 percent stake.

Naspers, by the way, owns 35 percent of Tencent.

“It’s a pretty good dialog all around,” said Tamas (pictured here), linking companies with both global and local aspirations.

But it’s the global ambitions that have attracted the most attention to DST of late, which, Tamas noted, created some confusion and unfair maligning of the company.

Interestingly, although it is all mashed up on its Web site, DST itself is not technically the entity that maintains its investments in companies such as Facebook.

That would be DST Global, its international arm which directly hold the stakes. It is not part of the Naspers or Tencent deals.

Of course, both are run by the same people, especially DST CEO Yuri Milner, and DST has a stake in DST Global.

“Initially, DST did fund those transactions,” said Tamas. “But we wanted to separate these investments from the Internet company to give investors the clearer differentiation.”

As to its future investments, Tamas said the company will likely fund start-ups that “check the boxes,” including exponential growth and social virality.

That means only two investments annually, as opposed to 10.

He also said DST would continue to fork over large sums–its invested well over $100 million in each of its U.S. deals.

“There is a perception that we pay high prices,” admitted Tamas, who noted its Facebook investment is now valued at much more. “But we have a global outlook on what we are investing in.”

DST is also a believer in getting some of that financing in the hands of founders and early investors, since it relieves financial pressure to sell or go public before a start-up’s time.

“We want to give the companies we invest in a year or two run,” said Tamas. “That is the sweet spot.”

He said, after its U.S. flirtation, that DST is now looking more in Asia and Europe.

But, even with its expansion and getting investments from well-known media giant such as Naspers, Tamas said he is not sure DST can shake the continued questions about the sources of its funding, especially given some of its initial investors are clearly part of the much-maligned Russian business oligarchy.

“We always have to explain and justify all of Russia,” said Tamas defensively. “Obviously, Naspers did its due diligence, as have others, and they feel comfortable with DST.”

Still, Russian issues will remain a concern for the long term. As noted in a recent report by Bank of America (BAC) investment unit Merrill Lynch, for example, on the Naspers-DST deal:

“We are also concerned that DST’s dominance in the Russian internet space (close to 70% market/mind share) may attract the scrutiny of the Russian government. The precedent with the other leading Russian internet company Yandex, when the government got a veto on sale or a golden share, signals that the government may not welcome a full takeover of DST by Naspers or Tencent.”

“We know the issues,” said Tamas. “But the best digital companies going forward are going to have to understand and operate in different parts of the world that are not just in Silicon Valley.”

In his latest note, he halved his target price on Palm (PALM) to $10 and lowered his forecast for third-quarter handset shipments to 900,000, from 1.1 million, and his forecast for fourth-quarter shipments to 1.2 million, from 1.5 million.

“Palm’s superior platform features have not translated into sufficient carrier support and consumer demand, and we are concerned the window of opportunity may be closing as Google’s Android ecosystem gains ground, RIM revitalizes its portfolio, iPhone increases its presence, and as Microsoft reboots its efforts with Windows Phone 7,” Arya wrote in a research note. “With only $130 million of net cash in an opex intensive space, Palm’s options may be limited in our view.”

Craig writes in a research note that he still thinks “long-term challenges remain” for Dell (DELL) and its business model.” But he notes that the stock is down 12% since November on skepticism around gross margin. “Low investor sentiment, high short interest, compressed valuation, possible enterprise refresh and likely positive EPS revisions position the shares for better performance in 2010,” he writes.

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“Despite increasing smartphone competition, Palm can maintain differentiation and remains well-positioned to launch its products with multiple new Tier-1 carriers in early 2010 by which time it should have a robust apps catalog,” Arya wrote. “While we expect the stock to remain volatile, the recent sell-off creates an interesting buying opportunity, in our opinion, for a company with an attractive platform, selling into a high-growth market, and at a compelling valuation.”

Interestingly, Arya notes that Palm’s webOS application ecosystem, initially something of a disappointment, is growing a bit more rapidly these days with between 50 and 100 apps being added to Palm’s App Catalog each week. He expects growth to continue with the debut of a new feature enabling customers to download apps simply by clicking on a URL. Arya believes this will dramatically improve discovery of apps and attract more attention from developers. His conclusion: With a more robust App Catalog and two attractive handsets, Palm is well-positioned to launch its webOS line with multiple new Tier-1 carriers like Verizon (VZ) in early 2010.

He cites four reasons for the upgrade, most of which boil down to a belief that the company is on the verge of staging a turnaround in its troubled handset business:

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The solar analysts at Merrill Lynch think so. In a piece authored by analysts Lu Yeung, Vincent Chow, Matthew Yates and Steve Millunovich, Merrill this morning asserts that “improving second derivative trends” suggest the industry is headed for a cyclical bottom.

The Merrill analysts assert that, while there is not likely to be a recovery in demand until early 2010, Q4 2008 and Q1 2009 “will mark the shipment bottom,” with modest sequential increases in subsequent quarters. “Our research suggests that some Asian vendors may forecast flat-to-rising shipments, suggesting inventory is peaking and depletion is underway, thanks to swift production cutbacks, signs of easing in solar project financing and solar ASP declines,” they write.

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Bekker writes in a research note this morning that he expects “competitive challenges and spending headwinds to persist in 2009,” offsetting growing contributions from premium services and international expansion. He says the stock’s valuation appears reasonable, but that there are “few catalysts on the horizon.”

Bekkar also notes that he is concerned that growth in its e-commerce segment, which accounts or just over a quarter of revenue, could decelerate given eroding online spending trends.

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Merrill Lynch analyst Raimo Lenschow this morning raised his rating on the German enterprise software giant SAP (SAP) to Buy from Neutral, upping his price target to $43.80 from $38.30, “predicated on the 2009 cost-saving story,” which he says the market isn’t getting. To reflect the increased belt-tightening, he upped his EPS estimates for the company to 2.11 Euros a share from 1.91 for 2009; for 2010, he goes to 2.31 Euros, from 2.21.

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A number of analysts issued pre-earnings notes this morning and brought down numbers; these follow previous cautionary comments from analysts at Barclays, Merrill Lynch, Goldman, BMO Capital, Citigroup and Credit Suisse.

Cowen’s Louis Miscioscia today repeated his Outperform rating on the stock, but slashed his estimates. He now sees EPS of 31 cents for the October quarter, down from 34 cents; 30 cents for the January quarter, down from 35 cents; $1.30 for the January 2009 fiscal year, down from $1.39; and $1.25 for fiscal 2010, down from $1.49.

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The Street’s reaction boils down to two parts. One, it’s about time. The company tried to blame the cuts on the economy, but this is more about Sun’s own issues than what’s unfolding in the rest of the world. And two, it’s not going to be enough to fix the company. Here are a few samples of the current Street sentiment on Sun:

Merrill Lynch’s Jeff Fidacado today repeated his Underperform rating on the stock, asserting that it will take several quarters for margin improvements from the cost cuts to offset declining revenues. “Sun’s cost-reduction initiatives come at a time when revenue growth of its legacy high-end server platform is deteriorating and the most recently shipped innovative products are not large enough to offset this decline.”

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But the stocks are coming under pressure, due at least in part to cautious comments on the prospects for the industry in the unfolding economic downturn by Merrill Lynch analyst Justin Post. The Merrill analyst cut his ratings on both Electronic Arts (ERTS) and Activision Blizzard (ATVI) to Neutral from Buy. He maintains his Underperform rating on THQ (THQI).

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Several analysts weighed in today with estimate cuts, pressuring the stock.

Merrill Lynch’s Vivek Arya cut this EPS estimate for the fiscal third quarter ended November to 80 cents from 95 cents, which is now below the Street at 92 cents. For the February 2009 fiscal year, he goes to $3.45, from $3.61, and for 2010, he goes to $4.08, from $4.45. Arya cited a number of factors for the downgrade, including macro headwinds, the late North American launch of both the Storm and the Bold, and increased competition from the Apple (AAPL) iPhone. He also notes that warnings from Best Buy, Circuit City and Intel suggest we are in for weak consumer demand in calendar Q4. “While smartphone demand would normally be more resilient due to carrier promotions and productivity benefits, the current environment demands caution,” he writes. His target price on the stock drops to $65, from $80.

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This morning, the Street churned out some more research filled with fretting over what CEO John Chambers is going to say tomorrow about the company’s prospects for growth in the January quarter and beyond. While the company has previously forecast growth for the January quarter in the 7.5 to 9.5 percent range, the Street is increasingly convinced that Cisco is going to bring numbers down. The question is how far down will they go – and how long will the downturn last.

Merrill Lynch analyst Tal Liani this morning said that the Street is looking for Cisco “to report weak results and provide weak guidance.” He notes that normally wide spread nervousness would be a good thing – but that this time around he remains cautious, and worries that “near-term trends could still be worse than expected.” Liani notes that demand for both high-end and low-end switches has weakened “considerably,” with growing price pressure.

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