Wall Street Beat: Tech treads water as confidence wanes

Server revenue is weak as HP gets hit with lawsuits related to the Autonomy acquisition

News of weak server sales, continuing turmoil at Hewlett-Packard and the ongoing U.S. political impasse over the so-called "fiscal cliff" have not given tech industry watchers much to cheer about this week.

Major IT companies including Microsoft, IBM, Intel, Apple and SAP reported mixed results for the past quarter, during a time of economic uncertainty. The revenue picture for tech remains gloomy.

Though worldwide server shipments went up in the third quarter of 2012 from the same period a year earlier, revenue declined due to economic uncertainty in some parts of the world, research firm Gartner said Wednesday.

Server units shipped worldwide increased year over year by 3.6 percent to 2.46 million Gartner said. Revenue from those units, however, declined by 2.8 percent to US$12.6 billion.

"The third quarter of 2012 again produced shipment growth on a worldwide level, but server revenue was weak due to ongoing economic weakness and market segment differences," said Jeffrey Hewitt, research vice president at Gartner, in the report. Only North America and Asia/Pacific managed revenue growth, while sales in Europe remained weak, Gartner said.

HP managed to hang on to the top spot in terms of server units shipped, moving 634,793 servers, Gartner said. However, its shipments suffered an 8.4 percent year-over-year decline, while Dell shipped 9 percent more units than it did a year ago, maintaining its number two spot in terms of units shipped. In terms of revenue, HP came in second to IBM after experiencing a 12.4 percent year-over-year decline to $3.33 billion.

HP continues to suffer fallout from its revelation last week that it was taking an $8.8 billion charge largely as a result of what it called serious accounting improprieties that occurred at U.K. software company Autonomy before it acquired the firm for $11.1 billion in 2011.

Taking the charge into account, HP suffered a $6.9 billion loss in its fourth fiscal quarter, the company said in conjunction with its earnings report. The report set off a fresh round of criticism that HP spent too much on Autonomy, a maker of business intelligence software geared toward analysis of so-called big data.

HP watchers in the last week have also been trying to figure out how HP arrived at its figure for the write-down, which appears large relative to Autonomy's revenue.

The write-down also brought to light a feud between Autonomy founder Mike Lynch and Hewlett-Packard's leadership over the alleged accounting fraud.

In a letter to the HP board issued Tuesday, Lynch blasted HP's claims that he was responsible for fraud.

"It was shocking that HP put non-specific but highly damaging allegations into the public domain without prior notification or contact with me, as former CEO of Autonomy," he wrote. "I utterly reject all allegations of impropriety. "

Meanwhile several lawsuits have been filed against HP and its auditors in the U.S. District Court for the Northern District of California. One lawsuit, brought by Allan Nicolow seeking class action status for shareholders, charges that HP officials "issued materially false and misleading statements regarding Hewlett-Packard's financial performance, business prospects and the status of its operating segments."

An HP spokesman said Friday that the company is reviewing the allegations, but declined to comment further.

HP shares were trading at $12.95 Friday afternoon, below the $13.30 level they closed at before the write-down announcement.

In one of the few scraps of good news for tech this week, e-commerce appeared to have been given a boost on Cyber Monday, the day after the U.S. Thanksgiving holiday weekend. The Adobe Digital Index said that online sales totaled about $1.98 billion, a 17 percent jump over Cyber Monday sales in 2011.

But it will take more than a few days of strong online sales to boost IT. Confidence in IT, as measured by investor sentiment, continues to be weak. The Nasdaq Computer Index was down by 5.26 points to 1,557.53 in Friday afternoon trading. Though computer company stocks on the tech-heavy Nasdaq are still about 13 percent above what they were at the start of the year, they are well below their level at the end of the third quarter.

At the end of the third quarter, Nasdaq tech stocks were up by about 25 percent over their level at the beginning of the year. During the third quarter, the U.S. Federal Reserve announced it would launch the "QE3," a third round of "quantitative easing," buying mortgage bonds and possibly other assets until the unemployment picture looks better. For its part, the European Central Bank revealed details of a plan to use a stability fund to buy up short-term European debt.

But since then, the reality of weak tech earnings reports as well as worries about the fiscal cliff, has put a damper on the enthusiasm generated by the banks' actions.

The fiscal cliff is a series of government spending cuts and tax hikes set to kick in next year if a budget compromise is not reached.

"There is a stalemate; let's not kid ourselves," said U.S. House of Representatives Speaker John Boehner, a Republican from Ohio, speaking on Friday to reporters, a day after President Barack Obama made a budget offer. The big issue is whether to extend low tax rates on household income above $250,000, with Boehner saying that Republicans oppose raising tax rates.

Major exchanges and indexes including the Nasdaq, the Dow Jones Industrial Average and the S&P 500 index declined in Friday afternoon trading.

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Tags internetbusiness issuesserversIBMe-commerceHewlett-Packardfinancial resultshardware systems

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Marc Ferranti

IDG News Service
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