Tech Developments Set the Table

Reports of a Hewlett-Packard revamp and a Xylan buyout suggest a decent open.
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After early indications of weakness, it looks like stocks are going to bounce this morning.

There are a few reasons for this. One is a report in

The Wall Street Journal

that

Hewlett-Packard

(HWP)

will announce a restructuring after the close that will break it into at least two separately traded companies. Spurring talk of how tech companies have plenty of value trapped in them even if revenue growth is slowing.

And then there's

Alcatel's

(ALA)

announcement that it will take out network-equipment maker

Xylan

(XYLN)

for $2 billion in cash. Spurring talk of how companies are seeing value in one another even if investors aren't.

And then there's the Treasury market. At 9 a.m. EST, the 30-year was up 14/32 to 94 10/21, dropping the yield at 5.65%. Nice to see it stabilizing a bit.

There are lots of good arguments to be made -- and some people are certainly making them -- that any strength today in techs, any suggestion of stability in the bonds, is merely a headfake. But these measures at least augur strength for the short term.

"We will see a little bit of a bounce that is at least tradeable if we can get the bond market to cooperate -- and it is," said Bill Meehan, market analyst at

Cantor Fitzgerald

. Meehan suspects that as long as bonds stay stable -- and he thinks there is an awful lot of bad news priced into Treasuries right now -- stocks should be able to move higher through the beginning of confession season in mid-March, when CEOs of companies that will miss earnings come out wearing sackcloth.

At 9 a.m. EST, the

S&P 500

futures were up 4.5, better than 5 above fair value and indicating a positive open.

Tokyo stocks turned tail to end sharply lower, pressured by companies unwinding cross-shareholdings. Banks -- which generally act as the nexuses of the "groups" (vestiges of the old

zaibatsu

) that dominate corporate Japan -- were hit particularly hard. The

Nikkei

dropped 300.69, or 2.1%, to close at 13,921.06.

The drop in Tokyo's market did not go unnoticed by Hong Kong traders. Japan's selloff prompted a round of midday profit-taking that took the

Hang Seng

down 106.88, or 1.1%, to close at 9913.58.

European stocks were taking back early losses. In Frankfurt, the

Dax

was off 3.4 to 4780.91. In Paris, the

CAC

was up 29.74 to 4061.79. And in London, the

FTSE

was up 25 to 6085.9.

Tuesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

  • Hewlett-Packard is expected this afternoon to set a major restructuring that could split the company into at least two separate publicly traded entities, the Journal reported, citing people familiar with the matter.
  • Alcatel is buying Xylan for $2 billion, or $37 a share in cash, marking a 27% premium over yesterday's Xylan close of 26 15/16.
  • Micron Electronics (MUEI) yesterday warned it expects second-quarter earnings and sales to fall short of first-quarter figures because of slower PC sales. The 15-analyst First Call outlook called for earnings of 14 cents a share vs. the year-ago loss of 23 cents. In the first quarter, the company made 12 cents. In other news (earnings estimates are from First Call):
  • Adobe (ADBE) - Get Reportis poised to unveil a new program, InDesign, aimed at its rival Quark. InDesign is referred to by nearly everyone in the publishing industry as the "Quark killer," although Adobe execs don't use the term, The New York Times reported in an article, which carries the headline "Adobe Sees 'Quark Killer' Putting New Life in the Company." Last year, Quark launched an unsolicited takeover bid for Adobe. The Times article says Adobe execs don't make any bones about attacking Quark in its core market for high-end page-layout software.
  • American Stores (ASC) - Get Report posted fourth-quarter earnings of 47 cents a share, excluding a charge, beating the seven-analyst forecast of 44 cents and up from the year-ago 35 cents.
  • @Home's (ATHM) - Get Report board declared a 2-for-1 stock split. Credit Suisse First Boston initiated coverage of the company with a buy rating.
  • Dayton Hudson (DH) posted fourth-quarter earnings of 97 cents a share before items, sprinting past the 15-analyst view of 90 cents and up from the year-ago 76 cents.
  • Elan (ELN) set a 2-for-1 stock split. Morgan Stanley Dean Witter began coverage of Elan with an outperform rating.
  • Federated Department Stores (FD) reported fourth-quarter earnings of $1.88 a share, beating the 17-analyst estimate of $1.82 and up from the year-ago $1.66. The company said fourth-quarter same-store sales rose 4.1%.
  • Morgan Stanley upgraded Intimate Brands (IBI) to outperform from neutral.
  • Microsoft (MSFT) - Get Report and Dialogic (DLGC) have entered an agreement under which Microsoft will license Dialogic's CT Media server software and Dialogic will provide development services to Microsoft in exchange for $20 million. Also, Microsoft has made a $24.2 million equity investment in Dialogic.
  • Sotheby's (BID) - Get Report posted fourth-quarter earnings of 66 cents a share, a penny shy of the three-analyst view and up from the year-ago 55 cents.

LI/>OfficeMax (OMX) reported fourth-quarter consolidated operating earnings of 36 cents a share, beating the 19-analyst estimate by a penny and up from the year-ago 32 cents. This year, the company said it plans to open at least 100 new, full-size superstores in the U.S., up to five new OfficeMax PDQ locations and additional delivery and distribution facilities, including one devoted exclusively to delivery of online orders.

LI/>Red Roof Inns (RRI) reported fourth-quarter earnings of 24 cents a share, beating the three-analyst outlook of 21 cents but down from the year-ago 26 cents.