With the U.S. Labor Day holiday marking the unofficial end of summer on the markets, tech stocks got off to a fairly positive start in the new season as several major deals and the mobile phone market came under especially intense scrutiny.
Major exchanges and market indexes were mixed Friday in the wake of a tepid government jobs report. The Dow Jones Industrial Average closed at 14,922.50, down by 14.98 points, while the Standard and Poor's 500 index and the tech-heavy Nasdaq both closed up slightly higher for the day.
The Dow, the S&P and the Nasdaq were all in positive territory for the week, however. The Nasdaq Computer Index of more than 100 tech-related stocks closed Friday at 1755.4, up by 3.82 for the day and also in positive territory for the week.
Tech stocks were among the most heavily traded shares Friday, with Microsoft and Nokia in the top five volume leaders of the day. This is not surprising, given the announcement Tuesday that Microsoft will buy the Finnish company's mobile phone business. Microsoft will pay $5 billion for Nokia's Devices & Services business and about $2 billion to license Nokia's patents.
Some analysts said that the deal is a necessary risk for Microsoft, which counts Nokia as its only major ally in the mobile OS battle against Google's Android and Apple iOS. Microsoft's mobile OS market share number is foundering in the single digits, and it may need the acquisition to assure that a major manufacturer will continue to produce Windows-based phones.
But the market appears to be sour on the deal, which pairs two tech giants that are so far on the losing side in the mobile market. Nokia shares, which at first jumped on the news, closed Friday at $5.37, down by $0.12. Microsoft shares dropped $1.55 on the news Tuesday, closing at $31.20, and drifted down during the week to end up at $31.15.
Many parts of Microsoft's broad product portfolio are doing well, but it's not a stretch to say that future success rests in large part on how well it does in the mobile market. "Never have as many mobile phones been sold worldwide as in the first half of 2013," according to a report from market research firm GfK this week.
"In the period January to June 2013, global demand for smartphones rose by 66% compared with the same period in the previous year," the report said. "Of all mobile end devices sold, 59% are smartphones."
Meanwhile, erstwhile smartphone leader BlackBerry wants to proceed as quickly as possible with a plan to sell the company in an auction process that could end by November, according to a story in The Wall Street Journal that cited sources close to the company. The company announced in August that it had formed a committee to explore "strategic alternatives."
BlackBerry has failed to meet the challenge posed by Android devices and the iPhone, and recent analyst reports indicate that the handset maker's 2013 products are not gaining much traction.
"Our global surveys indicate very weak Z10, Q10, and Q5 sales along with sharply declining legacy BB7 sales," said Canaccord Genuity analyst Michael Walkley in a research note this week.
"We believe the special committee formed by BlackBerry's board to explore strategic alternatives such as joint ventures, strategic partnerships, or a sale of BlackBerry is consistent with our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability," Walkley noted.
In another major deal this week, Verizon Communications said it reached an agreement to acquire for $130 billion Vodafone Group's 45% stake in its Verizon Wireless subsidiary. The deal calls for Verizon to take 100% ownership of the wireless unit, the largest mobile operator in the U.S. The company said the deal will allow it to offer "seamless and integrated services."
"Verizon will now fully control what we feel is one of the best wireless assets in the world," said Canaccord Genuity analyst Greg Miller. Nevertheless, perhaps concerned about the dilutive effect of the giant acquisition on Verizon's financials, investors dumped shares. Verizon shares closed Tuesday, the day after the deal was announced, at $46.01, down by $1.37, and ended the week at $46.34, regaining only some of the value it lost.
The market's mixed close at the end of the week may have been due more to geopolitical and macroeconomic issues than any particular deal announced during the week. Though stocks recovered somewhat during the day, a weak opening to trading was ascribed to fears about the Syrian conflict, and how involved the U.S. may get. The so-so jobs report was a mixed blessing.
Total nonfarm payroll employment increased by 169,000 in August, but the unemployment rate was little changed at 7.3%, the U.S. Bureau of Labor Statistics reported Friday.
"Bottom line: The momentum in the labor market is uneven at best," wrote Sterne Agee chief economist Lindsey Piegza in a research note Friday. "While headline job creation remains positive it is a far cry from robust, sustainable levels of growth suggesting a near-term draw down of available labor. "
Some market watchers see this as a positive thing, because uneven growth may induce the U.S. Federal Reserve to continue its policy of propping up the stock market by buying bonds. "From the Fed's standpoint, tapering plans were predicated on the economy, specifically the labor market, showing confirmed improvement. This morning's employment report gave no such confirmation," noted Piegza.
Tech vendors will not start reporting quarterly earnings for a while, so IT-related stocks may be at the mercy of such macro trends for the near term.