Wall Street Beat: Tech mergers cover range of IT

Jobs' death and market volatility capture headlines but for many companies it's business as usual

Steve Jobs' death raised question about directions in technology this week while worries about the economy continue to put downward pressure on tech stocks, but for much of the industry it's been business as usual, especially for mergers and acquisitions.

The big question for the consumer electronics sector is how Jobs' death will affect Apple, and by extension, its competitors in both the computer and home electronics markets.

Many analysts, considering Jobs' vision and tendency to micromanage, think he and his team prepared for his death in part by setting up a plan for Apple's product pipeline for years to come.

"That foundation will serve Apple well in the years to come, and there is little danger of Apple deviating from that successful strategy," according to a research note by Ovum's Jan Dawson.

The real question is what happens when the current plans are carried out and the company has to come up with a new generation of products.

"The risk -- if there is one -- is that Apple continues to rely on single 'hero' devices in its two major product lines -- iPhone and iPad -- with an annual release cycle. If one of those devices ever turns out to be a dud, it will put a huge dent in the company's revenues and margins," Dawson said.

Investors for the moment don't seem to be too worried. Apple shares slipped by $0.88 Thursday, less than 1 percent, the day after Jobs' death was announced. Shares of Apple, the most highly valued public company on the planet, declined more than twice that on Tuesday, after the company released the iPhone 4S to some disappointment that the new product turned out to be less of an upgrade than had been expected.

Apple shares Friday afternoon were down by $5.71 to $371.63, but the decline was part of a general dip in the stock market and technology stocks. Tech shares on the Nasdaq dipped by 8 percent Friday afternoon.

The major U.S. stock indexes declined Friday after Fitch downgraded debt rating for Italy and Spain, compounding worries about Greece's debt. The threat of sovereign debt default in Europe has reignited worries about another recession and concerns about corporate sales.

"The reality is that in bear markets, good data doesn't matter; stocks simply go down," wrote Canaccord Genuity analysts Richard Davis and David E. Hynes in a research note on the software sector. "That's what's happening now, and until European finance ministers stop dithering, the market is going lower."

Meanwhile, despite the complications that market volatility brings to company valuations for mergers and acquisitions, the week was filled with M&A news.

The Wall Street Journal reported Thursday that Sony is looking to acquire Ericsson's shares in the Sony Ericsson mobile joint venture. Such a deal would help Sony compete in the home electronics market against the likes of Apple, analysts pointed out.

"If Sony does become sole owner we should expect to see it transform itself," said telecom analyst Jeff Kagan in email.

Ericsson's stake is likely to be valued at more than €1 billion (US$1.3 billion), according to analysts. Meanwhile, deals that were confirmed this week were not on that scale, but indicate that market gyrations are not slowing down tech trends toward consolidation.

Some of this weeks deals included:

-- BMC Software's acquisition, for an undisclosed sum, of StreamStep, which focuses on technology designed to accelerate enterprise application delivery and improve release quality. The integration of StreamStep's process management capabilities into BMC's Application Release Automation (ARA) platform will support BMC's effort to provide application management from development to production, the company said.

-- Avaya said it acquired Sipera, which provides unified communications technology including Session Border Control (SBC) functionality and a range of UC security applications. Sipera will become a fully integrated part of Avaya. Sipera will help Avaya offer provide secure VoIP, videoconferencing, cloud-based communications, instant messaging and collaboration tools for workers in any location, the company said. The value of the deal was not disclosed.

-- Level 3 Communications closed its $3 billion deal for Global Crossing, expecting that the move will allow it to operate a telecom and networking services platform for medium and large enterprises, anchored by fiber networks on three continents in more than 45 countries.

-- On the security front, IBM said it bought privately held security technology provider Q1 Labs, fueling its effort to compete in the security arena against the likes of Hewlett-Packard and EMC. The value of the deal was not disclosed.

As companies report third quarter earnings, most analysts are looking to see more business-as-usual in sales figures that are -- excluding companies in certain tough markets like hardware -- for the most part solid. Whether that boosts overall investor confidence in tech is another matter.

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Tags business issuesApplesonyIBMAvayaEricssonbmcQ1 LabsGlobal CrossingLevel 3 CommunicationsSiperaStreamStep

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Marc Ferranti

IDG News Service
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