Wall Street Beat: Megamergers, earnings roil tech

IDG News Service - Against a backdrop of economic uncertainty, acquisitions and earnings news from the world's top PC makers (Hewlett-Packard, Dell and Lenovo), the biggest Internet business (Google), and a major handset maker (Motorola Mobility) marked major realignments in tech this week.

The M&A news highlights the dynamic nature of IT. Disappointing forecasts from Dell and HP, however, underscored sector weaknesses and gyrating share prices indicated once again that even cash-rich vendors are subject to economic concerns.

Google's announcement Monday that it would buy Motorola Mobility for $12.5 billion in cash was credited with exciting investors and boosting stock exchanges after a wild week on the markets. But HP's news Thursday that it would acquire information-management software vendor Autonomy for $10.3 billion in cash and spin off or sell its PC business did little to break another gut-wrenching decline in the major exchanges.

Housing and unemployment data caused fresh anxiety Thursday. New claims for unemployment benefits increased by 9,000 last week, while sales of previously owned homes declined 3.5% in June. Meanwhile an unnamed European bank had to borrow money from the European Central Bank. The Dow cratered, dropping 419.63 points, or 3.68%, while the Nasdaq declined 131.05 points, or 5.22%, and the S&P slipped 53.24 points, or 4.46%. Tech stocks led the way down. Nasdaq computer stocks were down 5.19% and Nasdaq telecom stocks dipped 5.69%.

Exchanges seesawed Friday. Of the 25 most heavily traded Nasdaq companies, five were tech vendors whose shares slipped in late morning trading, including Microsoft, Intel, Apple, Qualcomm and Autodesk.

HP's move away from the PC market comes after several quarters of flagging PC sales, as worried consumers chose to spend limited budgets on smartphones and tablets rather than traditional personal computers.

"The economy has impacted consumer sales and the tablet effect is real" said HP CEO Leo Apotheker on a conference call Thursday. HP essentially admitted failure against Apple, announcing it would shut down its webOS business for tablets and smartphones, which it acquired just last year, when it bought Palm for $1.2 billion.

With the Autonomy purchase, HP is banking on enterprise software, which has been fueling profits for companies including Microsoft, Oracle and IBM.

HP's PC business is profitable, but offers slim margins and has been on a downtrend sales trend, dipping 3% year over year last quarter, HP said in its quarterly financial report Thursday. By spinning off its PC business, HP would lose its position as the world's biggest IT company. But it would raise gross margins and possibly attract investors, who are complaining about HP's sagging share price, which is at the same level it was 13 years ago.