Oct 27, 2009

Tech Laggards IBM and AMD: Earnings Issues or Galleon Case?

IBM and Advanced Micro Devices were some of the worst laggards in the S&P tech sector index Friday, down roughly 5% and 7.3% respectively.(Only Micron Technologies was lower, at 8.1%) At first glance, it seemed like earnings issues were to blame.

When it reported earnings Tsurday, IBM slightly exceeded analyst' profit estimate with a 14% increase in third-quarter net income. Its shares slipped after hours and they stumbled out of the gate today, apparently on some sings of weakness in its services business in its numbers.

Likewise, AMD reported a narrower-than-analysts-thought loss when it reported, also on Tsursday. Even so, investors seemed to to have lingering worries about Sunnyvale, Calif.-based chip maker's ability to improve business. Its shares fell after the opening bell.

That all seems fairly straight-forward. But with the Feds crowing over "the largest hedge fund insider-trading case ever charged criminally" and the perp walk of Galleon Group's founder Raj Rajaratnam in heavy rotation on the news channels, we also figured it was worth pointing out that AMD and IBM were tied-somewhat tangentially - to today's big insider trading case.

In fact, Robert Moffat, a senior vice president at IBM, was charged criminally in the case. Authoroties allege that he told a woman named Danielle Chiesi of New Castle Partners LLC inside information regarding AMD. Chiesi is said to have passed that info on to Rajaratnam.

So did the case seem to add to the selloff of IBM and AMD? It's tough to say. IBM shares did dip a bit after 10:30 a.m., not long after the news broke. But the shares didn't make such a sharp move you could clearly pin on the Galleon case. AMD's share moves told pretty much the same story.

And of course, there were plenty of other companies touched upon in today's insider trading going's on. Some were even tied - or should we say cuffed-closer than others. Besides IBM's Moffat, Rajiv Goel, director in strategic investments at Intel Corp.'s investment arm, was charged criminally.

And the big fish in this case, Rajaratnam, is alleged to have received nonpublic information about Polycom Inc., Hilton Hotels Corp. And Google Inc., and improperly traded on that info. Authorities also allegedly received inside information regarding Akamai Technologies. It's tough to say the case caused share slides.

But let's just say it wasn't a good day for some of the companies who showed up in the government's accusations. Polycom fell 1.6%. Akamai declined 1.1%. Intel was off by 2.4%. On the other hand, Moody's Corp-a source from the credit rater allegedly provided inside information on Hilton-was up 0.3% on the day. And Google didn't seem to suffer at all, rising 3.8% Friday.

Source: http://blogs.wsj.com

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