STOCKWATCH - Low earnings, law suits and staying on track
STOCKWATCH - Low earnings, law suits and staying on track
The threat of the US going to war with Iraq has kept a lid on any major movement in the American stock exchanges of late. But the war was joined by high oil prices, HP earnings failure and law suits this week to serve up an enticing thriller.
Having remained low, but level, prices fell on Wednesday in part due to war worries, but also a surge in oil prices (always a worry in the world's largest oil using economy), and the report from Hewlett-Packard (HP). The HP report reminded the market that despite the war, the technology sector is still fighting a battle against low sales.
"It's a double whammy. People have kind of overlooked that [low earnings] over the past two weeks," said David Memmott, the head of listed block trading at Morgan Stanley to Reuters. HP missed its quarterly revenue targets and as a result its merger with Compaq has come under new criticism; HP stock became the second most active name on the New York stock exchange during Wednesday as is dropped more than 15 per cent and become one of the biggest losers of the 30 stocks that form the Dow Jones. HP shares dropped US$2.80 to $15.37; HP added that the current quarter is also likely to be flat for them.
"We got started on a bad thought with Hewlett-Packard," said Rob Pellati a trader with Cantor Fitzgerald.
HP's announcement sparked off a bad day for US markets with the Dow Jones falling 102.52 points and the technology based NASDAQ dropping 25.31 points. Backing up HP's claims that the current quarter will be flat is worries in the US that the war will push up oil prices, which is in turn preventing corporations from spending on technology.
HP was not the only member of the technology sector to see its stock drop. IBM lost $1.67. Dell lost 73 cents and Apple lost 52 cents on the S&P 500.
The pressure though is on HP, when the computing giant took over Compaq, its promise to investors was that the deal would cut costs and deliver revenue targets. As well as a drop in revenues, analysts are also concerned about the way HP reports its results (the merged company has adopted a system Compaq used, which was heavily criticised). Laura Conigliaro an analyst with Goldman Sachs has cut her rating for HP from "in-line" to "out-perform" and said that HP's new methods made it harder to track their profitability.
Some analysts are already making comparisons with other technology mergers that they have called failures, such as Compaq's acquisition of Digital Equipment Corp and IBM's acquisition of Lotus.
Away from Hewlett-Packard, Veritas chief executive Gary Bloom said the software vendor was on track for its first quarter. "Everything is kind of going as expected. It is a conservative climate," he said of the second quarter.
Not such good news for Veritas is the announcement from law firm Spector, Roseman & Kodroff that it has filed a law suit with the district court in northern California. The class action alleges that Veritas and members of its staff violated parts of the Securities Exchange Act by issuing false statements to the market earlier this year concerning the restatement of its 2000 and 2001 financial statements as a result of accounting transactions with AOL Time Warner.
Related Articles: