July 20, 2001

Open Source stock report: Earnings reports aplenty

Author: JT Smith

- By Dan Berkes -
The moment of truth arrived this week for a few Open Source and related technology companies this week, including Apple, with a 70% drop in profits; Sun Microsystems, losing ground for the first time since the '80s; and plucky Borland, adding 20 percent to its bottom line. Also: Caldera and TiVo hit with class-action lawsuits, and just what will it take to make you love Red Hat again?Wall Street sent stocks of computer hardware and software companies lower this week, thanks to investor anxiety, created largely by the rash of mixed earnings estimates issued this week. With the exception of Sun Microsystems, every company listed in this week's report experienced improved earnings for this quarter. In some cases -- most notably Apple Computer -- those earnings were still far lower than they were for the same reporting period just 12 months ago.

These companies also expect the economy to get worse before its gets better, but how much things will worsen has yet to be determined. In fact, Sun Microsystems refused to even provide an outlook for the second half of this year, stating that market conditions were just too unpredictable to give any kind of reliable forecast.

The Dow Jones Industrial Average rang the bell on Friday at 10,576.65, down 33 points from yesterday's close, but down by only 37 points from last Friday. The Dow hit its high note for the week on Thursday, when it closed at 10,610. Nasdaq ended the week at 2,029.37, down 17 points from Thursday and 55 points total from last Friday. The tech-heavy Nasdaq reached its high point for the week Tuesday, closing at 2067.32.

Four letters -- MSFT -- led Friday's decline. Microsoft lost a bit of last week's luster when the closed-source software maker pared down its earnings estimates. Investors and analysts expecting the company to record a profit near 45 cents per share on revenue of roughly $6.3 billion did not take kindly to news that actual earnings would be closer to 39 cents on revenues near $6 billion to $6.2 billion, and investors lowered the value of almost anything computer-related as a result.

Apple bests predictions, still loses ground
On Tuesday, Apple Computer released earnings for its third fiscal quarter, reporting net profits of $61 million, or 17 cents per share, $21 million and 6 cents better than it did during its second quarter. Apple credits strong sales of its revamped iBook notebook computer for the surge in profits, but the overall picture is far from rosy. Although third-quarter estimates beat analysts' predictions, the numbers show a 70 percent drop in profits from the company's previous third quarter, when it enjoyed sales of $200 million and earnings of 55 cents per share. On Wednesday, the first trading day after the announcement, AAPL closed at 20.79, down 4.31 from the previous day's close (and recent record high for the stock) of 25.10, and ended the trading week at a lukewarm 19.98.

IBM discloses earnings, warnings
IBM on Wednesday reported slightly better net income for its second quarter: $2.0 billion, or $1.15 per share, compared with $1.9 billion and $1.06 per share for the same reporting period during 2000. Analysts were on the mark with their predictions this time, expecting $1.15 per share on average based on estimates that ranged for $1.08 to $1.22. Big Blue tempered the announcement by saying it expected a 19 percent drop in profits for the second half of this year, thanks to a slowdown in its chip-making business and a strong U.S. dollar that would cripple overseas sales. After-hours trading dropped IBM to 100 after the announcement, but rebounded to end the week at 105.70.

Sun stunner: First loss since '89
Sun Microsystems reported its first quarterly net loss since 1989, and told analysts that the economy was simply too unstable to shine light, positive or negative, on whatever numbers it would end up with at the end of this quarter. On Thursday, the company posted a fourth-quarter net loss of $88 million or 3 cents per share, a stark contrast to from last year's same quarter when it reported $720 million or 21 cents per share in earnings. Sun blamed its poor performance on a $78 million loss on investments and $161 million of amortization related to past acquisitions. While analysts remain upbeat on Sun's future performance, many are revising their future earnings estimates for the company. Among their number Merrill Lynch, who lowered estimates from 46 cents to 39 cents per share for fiscal 2002. SUNQ ended the week at 15.03, down 0.61 from last Friday's bell.

Borland: Now with 20 percent more revenue
Borland Software International on Thursday announced financial results for its second quarter and the six-month period ending June 30, 2001. Revenues for the second quarter increased by 20 percent to $56 million, compared with revenues of $46.7 million from the same period a year ago. Running the six-months figures, the company disclosed revenues of $107.7 million, up 16 percent from $93.2 million for the first six months of 2000. Borland cites increased demand for Java development and deployment tools in the enterprise channels for its improved condition, along with better than expected sales of its Delphi and Kylix rapid application development software. BORL was down 1.29 to 14.70 today, the first day of trading after making that announcement.

Dell fingers Red Hat
Right now, there must be at least one financial type over at Red Hat wondering just what the hell it will take to impress investors. Thursday's announcement that Dell, the world's largest manufacturer of PCs, is now shipping Red Hat's Linux distribution on all of its servers and select desktop lines didn't seem to dazzle anyone. RHAT closed out the week at 3.40, down 0.08 on the day of the announcement, with a week-long drop of 0.52.

More legal woes for Caldera
For the second time in as many weeks, Caldera International is the recipient of a class action lawsuit. This time around, the plaintiff class is represented by legal firm Cauley Geller Bowman & Coates LLP. The complaint alleges that Caldera and several major securities brokers knowingly filed a false and misleading prospectus that, among other things, did not disclose that some investors would be required to purchase additional shares of CALD at pre-set prices after the initial public offering. Last week, lawyers at Bernstein Liebhard & Lifshitz LLP announced a similar class action suit against Caldera. CALD continued its steady decline, entering de-listing territory at 0.92, down 0.40 from last Friday's bell.

And TiVo, too
TiVo joins Caldera this week in getting smacked with the class-action stick. The company, which makes Linux-based digital television recorders and sells TV listing subscription services is being sued on behalf of the class by Schiffrin & Barroway LLP. Much like the suits brought against Caldera, Red Hat, and OSDN/NewsForge parent company VA Linux, this one alleges that TiVo's prospectus was false and misleading because it didn't disclose that any investors allowed to participate in the IPO would be required to purchase additional shares in the aftermarket. Whatever, said Wall Street, and TIVO closed up 0.79 from last Friday to 7.50.

Merlin conjures up a new chairman
Merlin Software Technologies this week announced the appointment of Hank Barber to the British Columbia-based company's board of directors. Barber, the first independent director on Merlin's board, has held various senior marketing positions at J. Walter Thompson, Warner Lambert, and McCann-Seattle. Shares of MLSW.OB closed the week at 0.26, down 0.05 from last week, but most likely due to investor scrutiny of its most recent quarterly report.

And finally, here's how selected Open Source and related technology stocks ended this week:

Company Name Symbol 7/20 Close 7/13 Close
Apple AAPL 19.98 24.85
Borland Software Int'l BORL 14.70 15.99
Caldera International CALD 0.92 1.32
EBIZ Enterprises EBIZ.OB 0.115 0.11
Hewlett Packard HWP 26.42 27.98
IBM IBM 105.70 108.53
Merlin Software Tech. MLSW.OB 0.26 0.31
Red Hat RHAT 3.40 3.92
Sun Microsystems SUNW 15.03 15.64
TiVo TIVO 7.50 6.71
VA Linux Systems LNUX 2.15 2.75
Wind River Systems WIND 15.17 16.18

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