HP fails to spark market

Though Hewlett-Packard kicked off the week reporting a quarterly profit, concern about the U.S. economy kept markets in turmoil before the Thanksgiving holiday Thursday, dragging down shares of technology bellwethers like Microsoft, AMD, and the tech-heavy Nasdaq Composite Index.

Though HP’s quarterly report capped a generally strong earnings season for IT vendors, investors are nervously braced for news of sales in the fourth quarter. Rising oil prices and continuing problems in the housing market are fueling worries that economic conditions will dampen both consumer and business IT spending.

Just before Thanksgiving, the Mortgage Bankers Association said that mortgage application volume fell by almost 3.6 percent last week. The Nasdaq Composite closed at 2562, down 24.66 points on Wednesday, before the holiday break.

While economic fears caused the Nasdaq to slump in the third quarter, IT vendors ended up posting strong sales, sending IT share prices back up during October.

HP’s financial report, released Monday, showed that strong sales of OpenView and Mercury IT management and middleware software helped fuel net earnings of $2.3 billion, compared to net income of $1.9 billion one year earlier. Earnings beat estimates of analysts polled by Thomson Financial, who forecast net income of $2.184 billion.

What’s more, HP’s forecast for revenue for the current quarter and fiscal year also surpassed analyst forecasts. The upbeat report on business products and bullish earnings outlook gave HP shares only a temporary boost. HP shares rose by $0.12 Tuesday to close at $49.56, but then slipped back Wednesday, along with most other tech shares, to close at $48.88.

High-flying Google, whose dominance in the Internet advertising market continues to attract IT investors, was one of the few bellwethers to avoid a decline before the break, closing Wednesday at $660.52, up by $11.98.

But economic jitters affected companies, including Microsoft, which closed at $34.23 Wednesday, down by $0.35, and AMD, which lost $0.45 to close at $10.83. The share price declines come even though AMD said it expects a strong fourth quarter and as analysts see strengths on both the business and consumer sides for Microsoft.

“In an environment where IT spending questions persist for 2008, Microsoft may be a solid defensive holding given its consumer exposure and strong product cycle,” according to a research note from Citigroup Global Markets Equity Research.

As IT investors brace for the first revenue reports for the fourth quarter, the traditional holiday buying season kicking off after Thanksgiving will be closely watched.