August 10, 2001

Open Source stock report: Not a good week for tech

Author: JT Smith

- By Dan Berkes -
Stocks took a minor beating this week as Cisco profits plummeted 99 percent and
the U.S. Federal Reserve hinted at recessionary times ahead. IBM gets another grid project,
software spending inches up, and Red Hat wants to sell you a suite. Also: Watch
Sun spin!The bigger picture
This was not a fun week to be an investor, especially one with a tech-heavy
portfolio. On Tuesday, Cisco Systems spooked Wall Street with its fourth quarter
earnings -- a paltry $7 million and 99 percent lower than its 4Q 2000 earnings.
The company also warned that it was far from hitting bottom, and that its
earnings situation would likely decline in the future. That's nearly all it took to
send tech stocks on a wild ride this week.

On Wednesday, the U.S. Federal Reserve released its "beige book" report, which
showed a continuation of the economic slump in the United States. Daring to use
the "R" word, the report did in fact note that the economy is teetering on the
brink of a recession. Combine Cisco's earnings with a doom-and-gloom report from
the Fed, and the stock indexes inched lower for the rest of the week.

Not as low as it could go, however: The herd is spooked, but there's something
about fear and uncertainty that's drawing the buyers to market. Stocks certainly
haven't plummeted as much as pundits have predicted at the start of recent
sessions. Of course, end-of-week speculation that the Fed might slash interest
rates one more time certainly didn't hurt Friday's performance.

At the Friday bell, the Nasdaq closed at 1,956.47, under the 2,000 mark for the
first time in several months, and losing 110 points for the week. The Dow Jones
Industrial Average rang the bell at 10,416.25, gaining a respectable 117 points
from Thursday's close, but still down 96 points from the end of business on
August 3.

Nasdaq compensates for June outage
At least 111 Nasdaq-traded stocks had their opening and closing prices for June
29 changed, due to a trading outage that day. The changes could affect a
stock's 52-week high high or low price. Complete lists of the adjustments made
can be found at Nasdaq Trader.

The future isn't bright for hardware sales
When data researchers at IDC released some preliminary numbers on hardware
spending last month, it predicted an increase in sales for the fourth quarter of
2001 and a turnaround starting in 2002. With new data available, IDC has
revised
its forecast
for the PC market, predicting a small amount of growth during
2002, but holding off recoveries for major markets, including the United States,
until 2003.

Software spending inches up
Consumers may not be upgrading their hardware as often as they used to, but
they're still
buying software in record numbers
. According a report from NPD INTELECT
Market Tracking issued earlier this week, 69.65 million software units -- in the retail
channel, at least -- were sold by stores in the
first half of 2001, beating the 69.6 million figure for the same period in 2000.
Revenues from those sales increased lightly, too, ending at $2.77 billion, up
from $2.74 billion last year.

The type of software being purchased speaks volumes about the current state of
the economy, not to mention computer security. Users are keeping an eagle
eye on their budgets during the economic slump, buying plenty of financial
software to keep track of their dollars and cents -- not to mention the
annual April rush to file income tax reports. The popularity of always-on broadband
connections like DSL and cable, coupled with growing concern over viruses,
contributed to a leap in the purchase of security-related software.

Red Hat moving to services
North Carolina's Red Hat Inc. is moving
into the field of services
with its first e-commerce suite. The software is
fairly common for an Open Source deployment: Apache Secure Web server,
PostgreSQL database, and of course Red Hat's Linux distribution. What Red Hat is
really selling with this setup is a simple and painless installation experience,
tightly integrated application functions, and dedicated support from its staff.
For all this, Red Hat is hoping that plenty of medium-size businesses will spend
about $3,000 each, once every year.

Big bucks for Big Blue
Distributed computing has taken off in a big way, and IBM has found itself in
the right place at just the right time to take advantage of that fact. Last
week, the company said it would create a supercomputing grid, with Linux as its operating system of choice.
This week, the National Science
Foundation awarded
the company a contract to construct four Linux-based
supercomputer clusters to powers its own grid, to be called the Distributed
Terascale Facility. When completed in late 2002, the DTF grid will be 1,000
times faster than Deep Blue, the supercomputer that defeated chess master Garry
Kasparov in 1997.

Are you being served?
While consumers aren't splurging on the latest systems, the picture is slightly
-- very slightly -- different on the business end of the market. Last Friday,
Gartner Group Dataquest released its
latest assessment
of the server market, showing strong gains for Dell
and IBM. The worldwide server market showed a modest 0.7 percent growth for the
most recently concluded quarter, and Compaq is still top dog, with 26.7 percent
of server market share, followed by Dell with 18 percent, and IBM with 16.7
percent.

Those numbers show a year of strong growth for the two companies. Dell's server
sales have jumped by 20 percent over the past 12 months, and IBM eked out a
respectable 10 percent increase for the same period. That growth comes at the
expense of other companies, of course: Sun Microsystems lost 15.4 percent, and
Hewlett-Packard fell 10.6 percent.

Sun spins, enhances Solaris
Sun Microsystems still managed to find good news in the Gartner report, and
issued a press
release
to tell the world it captured the number one slot for the Unix
storage market. The company's Unix-based storage efforts "continued to outpace
the overall market and increased by over 27 percent in 2000, to over $3.2
billion." The company attributes is success in this market category to strong
sales of its T3 StorEdge arrays.

The company beefed up
its Solaris 8 Operating Environment
on Monday, introducing three new
enhancements to make configuring and updating Solaris installations easier for
administrators. The update includes Live Upgrade 2.0, which loads software in a
manner that allows the system to continue running, the Network Cache
Accelerator, promising a five time increased performance of Web servers, and
Enterprise Dynamic Host Configuration Protocol, capable of managing IP addresses
for up to several hundred thousand clients.

Wind River floats high-availability software
Investors seemed to be mildly pleased with Wind River's Monday
announcement
of high availability (HA) extensions for VxWorks AE embedded
operating system. Called Foundation HA, the extensions support development work
for VxWorks AE OS on a number of operating systems and computer platforms,
including Solaris and Red Hat.

Who's suing who
Or who's announcing who's going to be sued. Here's a handy list of class action
suits and related legal announcements made this week:

Millberg Weiss have
announced a securities class action suit against TV recorder maker TiVo Inc. on
behalf of all individuals who purchased shares of the company between September
1999 and December 2000.

Schiffrin & Barroway
have announced a class period for similar reasons and the same time-frame, and
once again for TiVo.

Stull, Stull, & Brody
have Caldera in their sights, announcing a class action suit on behalf of
investors who purchased securities between March and December 2000.

Each case alleges that the defendants violated federal securities laws by
failing to tell investors that some underwriters had solicited and received
excessive, confidential commissions from certain investors. Those investors
were supposedly required to purchase additional shares of each company after the IPO,
sometimes at higher prices, causing the share price to rise to
artificially-inflated levels so that lead investors could then sell their shares
at higher prices. The nice one-word explanation for this practice on Wall Street
is "laddering."

Here's the stock picture in the Open Source world this week:

Date Nasdaq Dow
Fri - 8/03 2047.62 10512.78
Mon - 8/06 2032.51 10401.31
Tue - 8/07  2013.75 10458.74
Wed - 8/08 1966.36 10293.50
Thu - 8/09 1963.32 10298.56
Fri - 8/10 1956.47 10416.25
Company Name Symbol 8/10 Close 8/2 Close
Apple AAPL 19.02 19.50
Borland Software Int'l BORL 12.97 12.49
Caldera International CALD 0.73 0.75
EBIZ Enterprises EBIZ.OB 0.12 0.14
Hewlett Packard HWP 25.10 25.29
IBM IBM 104.95 108.18
MandrakeSoft 4477.PA e6.30 e6.19
Merlin Software Tech. MLSW.OB 0.18 0.195
Red Hat RHAT 3.81 4.04
Sun Microsystems SUNW 16.22 17.72
TiVo TIVO 6.90 7.00
VA Linux Systems LNUX 2.00 2.20
Wind River Systems WIND 14.95 15.72

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