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HP, Compaq Merger Fails to Rally US Tech Stocks - 2001-09-04

An early rally on Wall Street faded Tuesday, giving way to mixed results. Technology, in particular, was under pressure, despite news of a major merger.

The Dow Jones Industrial Average went up 47 points, less than .5 percent, to 9,997. But the tech-weighted Nasdaq composite slipped almost two percent, adding to last week's big losses. The broader Standard and Poor's 500 index fell less than a point.

A new report on manufacturing gave the market reason to feel a little better about the U.S. economy. Manufacturing was still down in August for the 13th straight month. But both production and new orders moved higher.

Meanwhile, a big merger in the troubled computer industry made news. Hewlett-Packard is buying Compac for more than $20-billion in stock. The deal is expected to be completed by the first half of next year.

Wall Street was less than enthusiastic about the merger. Hewlett and Compac shares traded lower.

Thomas McManus, an equity strategist at Banc of America Securities, says that historically, consolidation in industries tends to be a mixed bag. "I think if we look back at some other consolidating sectors over the past couple of decades, consolidation will ultimately be good for the consumer but not necessarily for shareholders," he said.

Acquisitions in the computer industry normally are difficult. Steve Milunovich, a technology analyst for Merrill Lynch, says the restructuring challenges for Hewlett and Compaq are formidable. But the main point, he says, is that personal computer companies have to consolidate if they hope to stay in business.

"I think we're now at a point where the industry is mature. We've argued that the PC game, in a sense, is over," he said. "It's not what's driving the industry itself. I think you need a third strong enterprise company after Sun and IBM. There's no question that there are a lot of difficulties here. But I think the relevant question is, are these companies better off apart or together?"

The U.S. oil services sector also got a dose of merger news Tuesday. Global Marine and Sante Fe International said they plan to join forces to create the world's second largest offshore oil drilling contractor with a market value of about $6 billion.

And, former U.S. tire maker Goodrich is spinning off its industrial products unit. This will allow the company to strengthen its aerospace business. Goodrich also passes off its liabilities to the new company, including litigation over asbestos.

Goodrich sold its tire business to Michelin in the 1980s.