Hardware stocks sting techs
IBM, networker Cisco weigh on sector as accounting concerns linger.
NEW YORK (CNN/Money) - Accounting concerns remained in the spotlight Tuesday as investors continued to sell tech shares.|
The Nasdaq composite index, which is weighted heavily with technology names, ended the session 54.59 points lower at 1,750.61, a 3 percent decline on the day.
Meanwhile, a sharp decline in shares of IBM weighed on the Dow Jones industrial average, which finished 157.9 points, or 1.6 percent, lower at 9,745.14.
Most of the technology segment indexes ended lower as well, with the stocks of computer hardware and networking-equipment makers especially hard hit.
The U.S. markets were closed Monday in observance of the Presidents Day holiday.
IBM (IBM: down $3.35 to $99.54, Research, Estimates), the world's largest supplier of computer hardware and information technology services, remained under the microscope, continuing to lose ground even after the company promised to provide greater detail in its financial statements.
On Friday, shares of IBM fell $5 after it was brought to light that a $300 million one-time gain from the sale of its optical transceiver business had bolstered the company's fourth-quarter earnings per share.
Gains from sales of business units normally are broken out as non-recurring items and not considered by analysts when weighing whether a company beats estimates. But IBM used that gain as an offset to its operating expenses, rather than as other income.
IBM defended the transaction, characterizing it as a example of how it recovers investments in intellectual property, similar to licensing royalty payments. And some analysts defended the practice, while at the same time pointing out that IBM executives could have done more to highlight it when they reported the fourth quarter's results.
Even so, in the wake of the collapse of energy trading firm Enron and its allegedly fraudulent accounting practices, investors have become hypersensitive to even a hint of accounting irregularities.
Prudential Securities on Tuesday told its clients to expect IBM's shares to be pressured over the next year due to what it called long-standing concerns about IBM's "earnings engineering."
The firm, which rates the stock a "hold," cut its price target price to $100 from $111 Tuesday.
Most other computer hardware stocks ended Tuesday's session lower as well.
Shares of PC leader Dell Computer (DELL: down $1.20 to $24.40, Research, Estimates) were among the biggest losers. Gateway (GTW: down $0.12 to $4.98, Research, Estimates) shares also ended the session on the minus column.
Meanwhile, Hewlett-Packard (HWP: down $0.60 to $19.76, Research, Estimates) shares moved lower as the war of words surrounding its proposed buyout of Compaq (CPQ: down $0.39 to $10.56, Research, Estimates) continued.
Walter Hewlett, the son of one of HP's co-founders who has vowed to block the deal, in a detailed filing with the Securities and Exchange Commission Tuesday said an independent HP could be worth $14 to $17 more per share than the merged entity in 12 months.
In response, HP reaffirmed its position that a merger is necessary to remain competitive, and it characterized Hewlett's recent comments as "last-minute propositions that change weekly."
The Goldman Sachs computer hardware index ended the session 11.63 points lower at 228.29, a 4.9 percent decline on the day.
At the same time, shares of Cisco Systems (CSCO: down $0.28 to $16.81, Research, Estimates) led the networking segment lower following a report in Monday's edition of the New York Post that drew parallels between deals it has made with some of those that ultimately led to the collapse of Enron.
"Accounting concerns are still lingering," said David Memmott, head of listed block trading for Morgan Stanley. "Cisco's somewhat negative article in the Post, rehashing concerns," didn't help, he said.
A spokesman for Cisco defended the company's business practices Tuesday, as did some analysts, including Peter Andrew of A.G. Edwards, who said he does not feel there are any improper dealings going on and called the story in the Post the result of "reporters with nothing better to do than to associate companies with Enron."
Meanwhile, shares of Juniper Networks (JNPR: down $0.12 to $10.15, Research, Estimates) fell, even after the company announced a major contract and was awarded and analysts upgrade.
Juniper on Tuesday said it won a contract with Ericsson to provide 80 percent of the infrastructure for China's mobile Internet network. At the same time, analysts at Needham & Co. upgraded their rating on Juniper's shares to "strong buy" from "buy."
Shares of Ciena (CIEN: down $0.28 to $8.45, Research, Estimates) fell after it announced on Monday that it would buy rival ONI Systems for $900 million, reflecting a 12 percent premium. Shares of ONI (ONIS: up $0.40 to $5.94, Research, Estimates) rose more than 7 percent on the news.
For the most part, networking stocks finished lower. The American Stock Exchange's networking index fell 8.19 points to 245.53, a 3.2 percent decline on the day.
Among those tech stocks ending in the plus column Tuesday was Visionics (VSNX: up $0.59 to $11.17, Research, Estimates), which makes face-recognition and fingerprint identification systems.
The company on Tuesday said it has struck a deal with Honeywell under which Visionics technology will be incorporated into a Honeywell product that allows for monitoring building operations.