June 29, 2001

Open Source stock report: Nasdaq glitch extends Friday's trading session

Author: JT Smith

- By Dan Berkes -

Open Source and related tech stocks ended the week on an up note; while a federal court order overturned a mandate for a Microsoft split, the court didn't overturn the earlier ruling that Microsoft is a monopoly. Also: VA Linux moves out of hardware, Compaq restructures, and Nasdaq calls a "do-over," extending trading for an extra hour on Friday.The Dow called it a week at 10,502.40, down 63 points from yesterday's one-week high of 10,566,21 and down 102 points from last Friday, when it closed at 10,604.59. Nasdaq went into the weekend at 2,160.54, up 35 points from Thursday's 2,125.46, and 126 points from last Friday's bell when it closed at 2,034.84, sustaining the latest upward trend that began on June 19.

Nasdaq was plagued for the second day in a row with technical problems, and stayed open for an extra hour on Friday so traders could get in a full day of transactions. This afternoon, a network glitch forced the tech-heavy exchange to shut down its small-order execution system and another system that handles larger trades. Nasdaq also canceled all after-hours trading for the day.

Following the news on Thursday that a federal appeals court had overturned a court decision to split up Microsoft, Nasdaq's transaction servers were so swamped with buy and sell orders for the Redmond, Wash., software maker that the exchange was forced to stop all trading activity for a three-hour period of time.

This week's Nasdaq outage was particularly vexing for investors hoping to catch in on the market upswing inspired by that Microsoft ruling. That ruling, coupled with optimistic investors gaining confidence that profits will, at some point, materialize, led most tech stocks to post modest gains or very small losses this week.

VA Linux exits hardware business
On Wednesday afternoon, VA Linux announced a restructuring move that will see the company exit the systems hardware business and lay off approximately 35 percent of its 436 employees. The company will now focus on application software development, primarily through marketing its SourceForge OnSite Collaborative Development System, and operation of its Open Source Development Network subsidiary, which operates sites including NewsForge, Slashdot and freshmeat.

On Thursday, the first day of trading after the announcement, shares of VA Linux closed at $2.59, down 67 cents from Wednesday's pre-announcement close of $3.26. In the extended Nasdaq trading day, shares closed up 91 cents at $3.50.

Compaq restructures
Compaq this week stunned many watchers with a few announcements that, to quote The Inquirer, "... will alter [the firm] so radically that it won't resemble anything like the Compaq of one year ago, never mind five."

In a memo from Compaq CEO Mike Capellas that was leaked to the Inquirer, the company's head honcho has set a deadline of 180 days to transform the company's "vision" into becoming "... the leading IT solutions provider." Over the next six months, the company plans to slim down structural costs, eliminate inventory, and speed up its supply chains. Compaq will also create new dedicated and vertical solutions groups and consolidate three of its customer services groups into a single organization.

Perhaps the most significant changes resulting from Capellas' new vision so far has been the announcement that the company will hand over its Alpha microprocessor division to Intel, and change over its entire 64-bit server line to Intel's IA-64 architecture by 2004.

After issuing a cash dividend of 3 cents per share on Thursday, Compaq closed the week at $15.32, up $1.82 from last Friday's bell.

IBM trudges on
And now, a sampling of some of the Linux-related news and press releases from Big Blue this week:

  • On Thursday, the company announced the 1.0 release of Journaled File System (JFS), designed to track changes to files and making it easier for a system to recover from a crash. Additionally, the company unveiled the first stable release of Next Generation POSIX Threading, software that gives Linux a standard way to handle multithreading.
  • IBM issued a press release to announce its new Start Now program, a series of e-business offerings for small- and medium-size businesses. Start Now includes three Linux solutions to handle everything from basic Internet access to Web site management to online business intelligence gathering.
  • NewsForge on Wednesday reported that the number of business applications available for Linux has increased, according to IBM's estimates, by 30 percent to 2,300 in 2001. IBM's director of Linux solutions marketing predicts that the growth of business-related apps will keep pace with the projected growth of the Linux server market.
  • On the technology research front, Big Blue announced on Monday that it has created the world's fasted silicon transistor, and expects to pump up its chips with the new technology to the mind-blowing speed of 100 gigahertz within the next two years.
  • 2001 may be known as the year the lights went out (and on, then out again, then on again ...) in California. IBM's contribution to ending the West Coast power drain arrived in the form of the world's fastest unclassified supercomputer, delivered this week to the National Energy Research Scientific Computing Center. NERSC plans to use its new technology, capable of 3.8 trillion calculations per second, to research kinder, gentler power generation methods that could ease California's dim bulbs.

In spite of this rush of announcements, IBM's stock doesn't seem to be headed drastically in any direction. While Big Blue closed this week at a very respectable $113.50 (after a brief visit to $115.10 on Thursday's close), it gained a mere 63 cents for the week.

Caldera in the hot seat
Caldera made a splash in Open Source headlines this week, when the company announced the release of version 3.1 of its OpenLinux Workstation. The bulk of that coverage, however, was over the company's new terms for the latest release of this software product: OpenLinux Workstation will require users to pay for a "certificate of license authority" for each copy. Shares of Caldera rang the closing bell at $1.45, up 9 cents from last Friday's $1.36, but down 10 cents from a mid-week high of $1.55.

Red Hat introduces new services
Red Hat Linux this week raised the curtain on several new services. On Monday, the North Carolina-based Linux service and software provider introduced its Red Hat Database, an Open Source database solution based on PostgreSQL 7.1 and optimized for the company's Linux distribution. Users can purchase the new product on an annual subscription basis for $199 per month, or for a one-time charge of $2,295.

On Wednesday, Red Hat unleashed a trio of new services, including a migration and integration services to help clients move from UNIX to Linux, and an Open Source Strategic Opportunities service to promote the advantage of Open Source for the enterprise. Wall Street, still in reaction mode from last week's "operating profit" announcement and its new-found love affair with a post-court Microsoft, didn't seem to care much one way or the other, closing Red Hat this week at $4 even, down 62 cents from last Friday.

Apple's newest employee
Apple Computer on Monday announced that it had hired Jordan Hubbard, the founder and leader behind the Open Source FreeBSD UNIX distribution. In his new role as the Cupertino, Calif., computer maker's manager of BSD technologies, Hubbard will concentrate on improving Darwin, the Open Source machinery that runs Mac OS X, Apple's newest operating system. Prior to joining Apple, Hubbard worked for Wind River Systems, coming on board for that company when it purchased the assets of Berkeley Software Design.

Borland back on Wall Street's radar
"This is not your father's Borland," wrote Bear Stearns analyst David Breiner in a research note. Citing new leadership, budding demand in the Java tools market, and new efforts to improve its application development tools -- not to mention a very affordable stock price -- Bear Stearns on Tuesday gave Borland's stock a "buy" rating. Bear Stearns is the first major brokerage to restart coverage of Borland; many on Wall Street had given up the company for dead some time ago. Since that announcement, Borland's stock has been on a steady climb from $13.30 on last Friday's close to $15.60 for the end of this week.

TiVo's woes
TiVo is one of the latest companies to be hit with a class action suit by disgruntled shareholders. Much like a similar class action announced against VA Linux several weeks ago, the suit alleges that TiVo's prospectus was "materially false and misleading" because it failed to disclose that Credit Suisse First Boston and other brokerages were allowed to allocate TiVo shares only to customers who agreed to purchase additional shares of the Linux-based digital TV recorder maker in the "aftermarket" at pre-set prices.

Speaking of Credit Suisse ...
The Associated Press (at CNET News.com) reports that Credit Suisse First Boston has fired three brokers in the wake of lawsuits and SEC investigations regarding once-hot tech IPOs. A source told AP that managing directors John Schmidt and Michael Grunwald and a company vice president Scott Bushley were fired "for violations of company policies and procedures." Bushley's attorney released a statement saying that his client was only following corporate orders.

Vacation notices
Many tech employees will have unplanned vacations this summer, whether they like it or not. As a cost-saving measure, Compaq plans to shut down all non-essential operations next week, sending 30,000 employees home for an extended Independence Day vacation -- except for those who work in California, where labor laws could be interpreted to mean forced vacations require companies to pay overtime fees to workers.

In a similar move, Hewlett-Packard today said it would ask employees to either take a 10 percent pay cut or use up at least eight collected vacation days. The move is a cust-cutting measure the computer company hopes will help it to cope with the economic slowdown, though it declined to say how much it expected to save.

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

Company Name Symbol 6/29 Close 6/22 Close
Apple AAPL 23.25 22.26
Borland Software Int'l BORL 15.60 13.36
Caldera International CALD 1.45 1.36
EBIZ Enterprises EBIZ.OB 0.29 0.34
Hewlett Packard HWP 28.60 26.37
IBM IBM 113.50 112.87
Merlin Software Tech. MLSW.OB 0.20 0.16
Red Hat RHAT 4 4.62
Sun Microsystems SUNW 15.72 14.47
TiVo TIVO 5.50 5.95
VA Linux Systems LNUX 3.50 2.94
Wind River Systems WIND 17.46 18.00

And speaking of vacations, I'll be taking one of my own next week. The Open Source stock report will return on July 13.


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