From paidContent.org, Jan. 29, 2009:

The theory goes that as we all stay at home during a recession, we buy more video games. But it’s not turning out like that as both Sony and Nintendo report declining sales figures and lowered forecasts for games consoles and software.

Sony: Sony announced today in its Q3 results for the three months to 31 December that operating income for its games division dropped 97 percent to 400 billion yen ($4 million). Even considering the strong yen and faltering economy, Sony simply sold less consoles and software over the crucial Christmas period than it did in 2007: games sales were down 32.2 percent to 393.8 billion yen ($4.83 billion). Sales of PS2, PS3 and PSP hardware and software were all down year on year, except for PS3 games which saw a 14.8 million unit increase, suggesting the end is near for the once all-conquering PS2.

Nintendo: Nintendo is faring better, thanks to the popularity of the Wii and the DS, and today announced a 21 percent increase in operating profits for the nine months to December 31. However, Nintendo cut its full-year operating profit forecast by 100 million yen to 530 billion yen ($5.9 billion) and despite selling 20.5 million Wiis in the last three quarters, and 44 million to date, the company has cut its forecast for Wii sales by one million to 26,500,000 for the full 08/09 financial year. 2008 was second Christmas of Wii being the “must-have” gadget, so a slow-down in sales due to saturation and a relatively small catalogue of great games, seems inevitable...

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For more coverage, go to paidContent.org: Earnings: Sony Expects First Full-Year Loss In 14 Years; Will Restructure Games, Music, Movies Units

Between MacWorld and the Consumer Electronics Show, investors (and reporters) can usually count on January to start out with a bang. But this year, Steve Jobs isn't attending MacWorld. And CES? Well, how exciting is a show about high priced gadgets, when no one has any money to spend.

But never fear: My guest Paul Kedrosky joined me to tell investors what he thinks the unsexy but potentially lucrative CES trend will be. Also, he weighs in on today's Sony drama.

Plus, click "more" to embed this video.

The notion of technology as being relatively insulated from the credit crunch imploded earlier this year. It now appears the idea of the video segment being practically recession proof is heading for the same outcome.

Shares of Electronic Arts tumbled nearly 18% Friday, even as the broader market continued its recent rally. Late Thursday, the video game maker reported a wider-than-expected loss for its fiscal second quarter and forecast much weaker-than-expected bottom-line results for the full fiscal year.

EA was hit by company-specific issues; namely, aging titles and the delayed release of the next Harry Potter movie until summer 2009, meaning no related video game sales this holiday season.

But EA is not alone in suffering. After reporting very strong sales figures for the first half of its fiscal year, Wii maker Nintendo warned that its fiscal year profits won't meet prior expectations due to a stronger yen and weaker global economy.

As for non-consumer technology, AmEx's plans to cut technology-related spending is another blow to companies like Sun Microsystems, which fell 13% Friday after reporting weaker-than-expected fiscal first quarter results.

At this point, only IBM and H-P have been relatively unscathed by the global economy's woes. How long can that last?

Watching the Nasdaq drop the most points since May 2000, it's clear Silicon Valley isn't immune from the bank meltdown on Wall Street. Even the mighty Google and Apple weren't safe: Google fell more than 11% today to under 400 for the first time in two years and Apple fell nearly 18%.

There is plenty for tech investors to worry about:

-    The financial sector could slash IT budgets, impacting enterprise players like Oralce, IBM and Hewlett-Packard. At a minimum there are fewer banks to buy up software, hardware and services thanks to the forced consolidation.

-    A worsening economy will very likely hurt every consumer play from Research in Motion to Apple to gaming companies. Already, RBC Capital Markets says 40% of people plan on spending less money on electronics in the next 90 days, the weakest outlook the bank has ever seen. That doesn't bode well for a strong Christmas season.

-    Web companies grappling with a continued deterioration in advertising spending now that the Olympic boost is over and the presidential election has just a little over a month left.

-    The impact a shut down IPO and acquisition market has on an already abysmal year for venture capital returns. Sure, the public markets don't immediately affect startups; that's the advantage of being private. But investors need a return at some point. In sectors that have been overheated in recent years like the Web or clean tech, expect second and third rounds of funding to get tighter if companies aren't showing any progress on revenues. With ad markets shut off and the general economy in turmoil, that's a lot harder to do. Entrepreneur Jason Calcanis recently said the collapsing economy would kill some 50%-80% of startups. You can argue that's just the odds to the early stage startup game, but this economy and its lack of liquidity and confidence certainly doesn't help.

We'll keep an eye on all of these ripples, as shoes continue to drop in this crisis and the Valley picks its jaw up off the floor and actually starts to react. But it's important to realize so far it's a story of ripples in the Valley-a long list of potentially deadly ripples to be sure-but ripples nonetheless. For people who've been in the Valley more than ten years, there's none of the hand-wringing of the last bust when more than 450,000 Valley workers lost their jobs in a little more than a year and the Nasdaq lost three-quarters of its value in just a few years.

It's been a few years since Second Life went from hot to over-hyped, but overall investment and interest in virtual worlds is growing. Really. Not only is investment in the category up, as we last reported in April, but it was one of the biggest categories of innovation when Jason Calacanis and Michael Arrington evaluated thousands of companies for their TechCrunch50 competition. Expect examples of new virtual world technology and ideas to demo at the conference next week.

The biggest stunner? It's already a multi-billion business globally.

What happens with two bombastic, larger-than-life Tech personalities join forces? They infuriate some people, delight other people and generally shake up an industry. When Jason Calacanis, of Weblogs and Mahalo fame, and Michael Arrington, of TechCrunch fame decided to launch the TechCrunch40 conference last year, they were hardly subtle about it. Urban Valley legend is that Arrington rudely announced the conference on the floor of the venerable--and competing-- Demo conference where hallowed products like TiVo and the PalmPilot first debuted to the masses. He says he actually blogged about it in pajamas from the hotel room, because he was too bored to even stay at Demo. But either way, the gloves were off.

The conference is back on Sept. 8 and now dubbed TechCrunch50 for the 52 companies debuting at it. (Don't ask.) It's being held the same day as Demo this year and tech folks are choosing sides carefully. For a two-year-old conference, TechCrunch certainly has some big-name loyalists. Among its panel of experts are Marissa Mayer of Google, Marc Andreessen of Netscape, Opsware and Ning fame, Mark Cuban, Chad Hurley of YouTube, and some of the Valley's most powerful investors. Not bad.

Center stage are the startups. Both Calacanis and Arrington are known for rubbing some people the wrong way, but even critics admit these are two guys obsessed with helping fledgling entrepreneurs. They don't charge companies to present and spend hours with each one, helping founders hone their pitches. They require that the VCs sponsoring the event give the entrepreneurs a private audience. And they award the winning company $50,000. Most notable: This isn't the insider crowd. The bulk of the startups are outside of the Valley game, with one-quarter of them coming from outside the U.S. If they've stepped on toes and bruised industry egos in the last two years, Arrington and Calacanis shrug that they're doing it for entrepreneurs and entrepreneurs are the life blood of the Valley and the greater tech economy.

We snagged the entrepreneurs just before the conference kicks off Monday Sept. 8, to tell us what to expect and why they picked such a nasty fight. TechTicker will be on scene for much of the conference too, so stay tuned.

The Shanghai Index has fallen as much as 60% from its October peak but that is an opportunity, not a sign that the China growth story is over, he says. The growth of its middle class makes investing in China akin to the PC market in the 1980s and 90s, when investors (almost) couldn't go wrong.

In the accompanying video, Altucher reveals his top China stock picks, which each have strong cash positions, no debt and trade at low P/E multiples: online game company Giant Interactive, cell phone manufacturer Cogo Group, and real estate agency E-House. (At the time of interview, Altucher had no position in stocks mentioned.)

Jim Greer already had it pretty good. The mild-mannered founder of Kongregate had snared money from the Valley's elite Web investors including Jeff Clavier, Reid Hoffman and Greylock -- despite more than a few of them claiming they weren't too bullish on gaming.

In May he landed another big fish: A $3 million "rainy day" infusion from Jeff Bezos. The kicker? Bezos came to him. Greer tells us the rest of the story and explains why Kongregate has struck a chord with high tech elite in the second half of our studio interview.

Related segments:
Why Gamers Are Addicted to Kongregate