In this age of consolidation and mega-mergers, it's not every day that a major technology company decides that what it really needs to do is get smaller.
Hewlett-Packard (HWP), which practically served as midwife for the birth of Silicon Valley, jolted Wall Street Tuesday with news that it will split apart into two separate publicly traded firms. One will focus on HP's computer and imaging operations, while the other will include its more diverse interests in medical technology, diagnostic tools, and chemical analysis.
Trading in HP's stock was delayed in the morning pending official word of the breakup, although The Wall Street Journal had tongues wagging with a sneak peek at the announcement. When trading resumed, HP jumped US$5.25 to $71.13.
The broader market seemed grateful for some actual news to chew on, rather than the same old worries about bonds and interest rates. The Dow Jones Industrial Average gained 76.61 points to 9401.39 in mid-afternoon trading, and the Wired Index was 5.59 higher at 578.05. The Nasdaq Composite Index rose 14.05 to 2309.23, and the S&P 500 was up 8.21 at 1244.37.
Dow component HP set the pace for the rally. "We are taking this action to sharpen the strategic focus of our businesses, improve their agility, and increase their responsiveness to customers and partners," the company's CEO, Lewis Platt, said in a statement.
Current shareholders will hold stock in both new companies, and each will have its own board of directors. An IPO for about 15 percent of the newly formed measurement enterprise's outstanding shares is expected by the end of the year. It will be the largest tech IPO in Silicon Valley history.
"It's pretty logical," observed Jerry Fleming, an analyst with Van Kasper & Co. "Hewlett's got a great position in the medical market. A lot of these businesses carry pretty hefty valuations that weren't being recognized by investors."
At the same time, HP's computer business has struggled to keep its head above water amid increasing competition and ongoing price reductions. It also has lost ground for big-ticket server sales to rivals IBM and Sun Microsystems.
The notion of a leaner, meaner HP spurred investors to express mixed feelings about other PC powerhouses. Dell Computer (DELL) fell 63 cents to $79.94, and Compaq Computer (CPQ) was down 72 cents at $32.81. But IBM (IBM) advanced $2.25 to $170.63, and Apple Computer (AAPL) was $1.25 higher at $35.
On the semiconductor side of things, leading chipmakers had their own problems to deal with. Intel and Micron Technology were both lower as NationsBanc Montgomery Securities downgraded each company's stock to "hold" from "buy." Intel (INTC) shed $2.81 to $114.25, and Micron (MU) was down $1.63 at $55.88.
PC direct seller Micron Electronics (MUEI), meanwhile, plunged 18 percent to $11.88 after warning that its second-quarter sales and earnings may decline as much as 9 percent from the previous quarter. It blamed a slump in computer sales for the revised forecast. Analysts had been looking for profit of 14 cents a diluted share.
Sun (SUNW) rose $3.63 to $100.88 after saying it will hand over its microprocessor designs to outside developers free of charge. The move -- the first by a major chipmaker -- is intended to woo programmers into coming up with new products for Sun's systems. Morgan Stanley Dean Witter reiterated a "strong buy" rating for Sun's stock.
In telecom, equipment maker Xylan (XYLN) soared 33 percent to $35.88 on word of its $2 billion acquisition by France's Alcatel. The $37 a share purchase price represents a 37 percent premium over Xylan's Monday close. Alcatel, which already owns 6 percent of Xylan, is seeking a more active role in global voice and data networks.
And from the Internet front, Lycos (LCOS) climbed $3.25 to $91.81 after USA Networks CEO Barry Diller explained to an investment forum how the merger of his company's electronic retailing assets with the portal is "a grand slam." He said the market "overreacted" to the deal by driving down Lycos' share price almost 30 percent since the tie-up was announced.
Diller added that he isn't even thinking about renegotiating the terms of the complex marriage. For its part, Lycos is now in the process of acquiring Wired News' parent company.
