STOCKWATCH: IBM results cap good week

By Paul Montgomery

IBM's quarterly results, which showed what amounted to parity in its storage business, gave a nice polish to what was a largely positive week for tech stocks in general, including storage.

IBM's total revenue for the third quarter reached US$19.8 billion, which was about what it was this time a year ago, despite the fact that the company had to exclude revenue from its hard disk drive business which it is in the process of selling to Hitachi Data Systems. Revenue from its enterprise systems division, which includes its disk and tape hardware lines, as well as server products, dropped 0.9 per cent to US$3.03 billion - a fair result given the performance of much of the sector.

The results were released late yesterday afternoon US time, which resulted in a day which had been characterised by losses being somewhat tempered. The preceding four days had all seen gains in tech stocks, and the storage sector joined in the fun. EMC, for example, had risen from US$4.13 last Thursday to US$5.11 on Wednesday, but dropped back to US$4.76 overnight. Similarly, Brocade went from US$5.60 to US$7.20, but lost much of its gains to close at US$6.13.

Several storage stocks have regular single-day percentage changes in the double digits, and LSI Logic proved that over the last couple of days by jumping over 20 per cent from US$4.11 to US$5 on Tuesday US time, only to drop back by 13 per cent overnight to US$4.35. Other volatile stocks which zigzag about like this include BakBone Software, FalconStor Software and Overland Storage. The last of these, Overland, had a five day percentage change history that went like this: up 9.5, up 7.8, down 2, up 4.4, down 14.4.

Elsewhere in the sector, Salomon Smith Barney analyst Clinton Vaughan was at it again, after antagonising the industry with negative pronouncements last week (see story). The target of his bearish wrath this week was Maxtor, whose rating Vaughan cut from In-line to Underperform.

"Channel contacts indicate that the company has achieved lower than anticipated yields and has fallen short in many instances due to a lack of demand for 60 gigabyte areal density," said Vaughan in a note to investors. Maxtor's price dropped from US$2.50 to US$2.30 on the day of the rating cut of Friday, and has since deflated further to close at US$1.89 overnight.