June 22, 2001

Open Source stock report: Markets drugged

Author: JT Smith

- By Dan Berkes -
The tech segments of the stock market were a mixed bag today. The reason, this time at least, had nothing to do with technology and everything to do with medication. Oh, and Red Hat posted an operating profit, for whatever that's worth.The Dow closed on Friday at 10,604.59, down 110 points from Thursday but only minus 19 points from last Friday's close. The Big Board had its worst moment of the week on Tuesday's close -- when the bell rang, the index closed at 10,596 points that day. The Nasdaq ended Friday and closed out the week at 2034.23, dropping almost 24 points from yesterday, but ending another week on the plus side, up by 30 points from last Friday's close.

Surprisingly enough, tech stocks weren't the whipping boys for this week's Dow decline. Those honors went instead to the normally stable and dependable drug companies. The market edged lower on news that Merck & Co. will miss its second-quarter and full-year earnings forecasts due to disappointing sales of its arthritis medication Vioxx, and the conditions of foreign markets.

Paul McManus of John Hancock's Core Equity Fund provided a CNN reporter with the double-edged quote of the day on the drug company decline: "If you can't hide in drugs, where can you hide?" Something, we're sure, that many tech investors have been asking themselves as they witnessed their securities plummet late last year. Make that a vicodin with a codeine sidecar, please.

Red Hat in the blackRed Hat Linux made big headlines everywhere this week with its announcement of a $600,000 operating profit for this quarter. Announcing profits in a market segment that, according to industry doomsayers, will never make a dime, should be cause for celebration. For Red Hat, it meant that it was time to take a beating: Analysts at Hambrecht & Quist and Goldman Sachs downgraded the stock, noting that Red Hat's sales have actually dropped from the last quarter.

The company's announcement may eventually bring it more than it bargained for. The accounting method -- called pro forma -- used to divine that profit announcement exclude items like one-time chargers for mergers and restructuring activities. Pro forma results go against the grain of Generally Accepted Accounting Principals (GAAP) that the U.S. Securities and Exchange Commission requires companies to use for their filings with that agency. When going by GAAP -- or what the Red Hat profit announcement called "on a reported basis" -- the company had a net loss of $27.6 million, or about 16 cents per share.

The SEC is investigating several companies for possible deception through the use of pro forma financial results. While Red Hat is not one of those companies under investigation, that the regulatory agency is looking into such results should be taken for what it is: A warning shot across the bow of public companies hoping to spruce up their public image during the economic downturn.

LynuxWorks beats a retreat
Embedded Linux software and service provider LynuxWorks has withdrawn its plans for an initial public offering (IPO). In a June 21 letter to the SEC, the San Jose, Calif.-based company said it had chosen to abort its planned IPO "due to general market conditions." LynuxWorks, apparently content not to elaborate further upon this decision, did not return telephone calls seeking comment.

Apple bitten by lawsuit
Apple Computer this week was hit with a patent-infringement lawsuit. Document processing company Pitney Bowes claims that one of its patents comprises the key technology in Apple's now-discontinued line of LaserWrite printers. Pitney Bowes has similar lawsuits pending against Xerox, Lexmark, and NEC, and recently settled with Hewlett-Packard, who ended up paying $400 million in damages.

Dateline: Big Blue
IBM this week received a green light from the European Commission to buy Informix Corp's database division. The EC issued a statement saying that its investigation has shown that IBM's share of the global distributed database management systems market does not raise any antitrust concerns. IBM's purchase of the Informix datbase business is valued at $1 billion.

Back in the land of Linux, the company teamed up with Trustix AS to release a joint product by the name of GoldBox. GoldBox was described as a turn-key IT infrastructure based on Linux, "the fastest growing operating systems for servers."

Change of guard at Borland
Borland Software Corporation on Friday announced the promotion of Frederick A. Ball to the office of executive vice president. In addition to his new role as excecutive VP, Ball will do double duty as the company's chief financial officer. Borland offers a range of development products; for the Linux platform it promotes a rapid application development environment under the name Kylix, and a "Kylix-compatible" version of Delphi 6.

Here's how Open Source and related techs ended this week on Wall Street:

Company Name Symbol 6/22 Close 6/15 Close
Apple AAPL 22.26 20.44
Borland Software Int'l BORL 13.36 13.40
Caldera International CALD 1.36 1.53
EBIZ Enterprises EBIZ.OB 0.34 0.45
Hewlett Packard HWP 26.37 27.00
IBM IBM 112.87 113.60
Merlin Software Tech. MLSW.OB 0.16 0.125
Red Hat RHAT 4.62 4.51
Sun Microsystems SUNW 14.47 15.19
TiVo TIVO 5.95 6.30
VA Linux Systems LNUX 2.94 2.79
Wind River Systems WIND 18.00 21.00


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