September 21, 2001

Open Source stock report: Like 1998, but not in the good way

Author: JT Smith

- By Dan Berkes -
The markets resumed normal trading this week, but their losses were anything but
normal, as the Nasdaq composite and Dow index dropped to levels not seen since
1998. The travel industry was hit the hardest, but technology wasn't spared by
any means. This week: Apple cancels its Paris show, companies buy back their
shares, and Red Hat doesn't break even.
The American markets reopened on Monday for the first time since the 9/11 attacks on the Pentagon and World Trade Center, promptly diving to levels not seen in almost three years. On Monday, the Dow Jones Industrial Average dropped 685 points, paused for breath with a 17-point drop on Tuesday, lost 144 points on Wednesday, another 383 points on Thursday, and to round out the week, lost another 141 points to close out this disastrous week at 8,235.81. Nasdaq's losses were every bit as miserable, losing 116 points on Monday, another 24 points on Tuesday, 28 points on Wednesday, a steeper 57 points on Thursday, and finally shedding 47 at Friday's bell. The Nasdaq composite now stands at 1,423.19. Less than one year ago, the tech-heavy Nasdaq market had a composite in the 4,000-point range.

This is probably the first time in at least a year that technology and Internet stocks were not at the heart of Wall Street's major movement. While those sectors have suffered losses right along with every other company traded in New York, the American travel industry is suffering major pains at the moment. Due in part to the nature of last week's attacks and the new restrictions in place at airports around the nation, Americans have chosen to stay home in droves. In the past week, the major U.S. airlines have laid off almost 100,000 workers, trimmed their schedules by up to 20 percent, and appealed to Congress for a $25 billion financial aid package. It is entirely possible that some U.S. airlines will disappear from the skies completely, as both United and Continental have said it is doubtful they can survive more than 30 days under current regulatory and economic conditions.

It wasn't supposed to be this way. Analysts expected that some sell-off activity would happen on Monday, but that damage would be limited. The American markets will rebound, they said, and strong stock buy-back commitments from major companies, including Red Hat Inc., IBM, and Hewlett-Packard were supposed to instill a patriotic rally, urging investors to go on a shopping spree. But the aftermath of the attacks reveal that business, unfortunately, is as usual, and the higher insurance rates and forced compliance with new, unfamiliar regulations, coupled with the fact that the U.S. economy was already in a downturn mode, all made for the inevitable drop in corporate value this week.

And while President Bush's Thursday address to Congress said all the things the American public wanted to hear, it indicated to investors that international tension was running high. While war has, historically, been good for the American economy, it may not be so this time. The Gulf War was expected to lift the American economy out of its early 9'0s doldrums, but the expected leap was more of a hop.

However, there is hope. The Federal Reserve's Monday interest rate cut -- another half-point, and the eighth cut since the start of the year -- is a good sign. As one trader passing by the entry of the Pacific Stock Exchange in San Francisco said this morning, "Too bad most traders are too scared to work the new opportunities that have opened up this week."

Who's buying back
Among the companies we track that have announced plans to buy back stock are Borland Software International, which has been authorized by its board of directors to re-purchase up to $30 million of its outstanding common stock; Hewlett-Packard's board authorized its agents to take in up to $1.8 billion of its stock; and Red Hat said it would re-purchase up to 10 percent of its outstanding common shares over the next 12 months.

Red Hat runs the numbers
Red Hat almost broke even this week, then learned that almost doesn't matter much in the current financial markets. Analysts expected the company to break even this year, but were instead treated to a second-quarter net loss (including items) of $55.3 million, or 33 cents per share, compared with a loss of $20 million, or 12 cents per share for the same reporting period in 2001. Expect downgrades -- such as the one issued this Friday from JP Morgan -- to follow.

Caldera makes cutbacks official
On Tuesday, Caldera international made it official: The company has eliminated about 8 percent of its total work force. This is merely a clarification of previous layoff announcements. As reported last week, one of the causalities of Caldera's restructuring was programmer Juergen G. Kienhoefer, responsible for creating the key Linux Kernel Personality software that allows Linux programs to run via Open Unix without modification.

Apple stays home
Apple Computers this week announced it had canceled Apple Expo 2001. The annual technology showcase was scheduled to take place at the end of this month in Paris. In a press release announcing the cancellation, Apple CEO Steve Jobs said his company canceled the event out of concern for the safety of Apple's customers and employees. "We're sorry to disappoint our users and developers," said Jobs, "but their safety is our primary concern."

Here's how Open Source and related stocks ended this week:

Company Name0.30 Symbol 09/21 Close 09/10 Close
Apple AAPL 15.73 17.37 *
Borland Software Int'l BORL 7.58 9.47
Caldera International CALD 0.30 0.39
EBIZ Enterprises EBIZ.OB 0.03 0.025
Hewlett Packard HWP 14.96 17.89
IBM IBM 90.50 96.47
MandrakeSoft 4477.PA e6.19 e6.18 +
Merlin Software Tech. MLSW.OB 0.18 0.25
Red Hat RHAT 3.51 3.12
Sun Microsystems SUNW 7.96 10.29 *
TiVo TIVO 3.70 4.30
VA Linux Systems LNUX 0.78 1.14
Wind River Systems WIND 10.40 13.12


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