TECH STOCKS: H-P Seen Gaining As IBM Exits Key Market

By Dow Jones Business News, 
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By Benjamin Pimentel, MarketWatch

Shares of Hewlett-Packard rallied Tuesday after a Barclays analyst upgraded the stock, saying H-P is poised to gain market share as rival IBM Corp. exits the low-end server market.

H-P ( HPQ ) climbed 3% after Barclays analyst Ben Reitzes raised his rating to overweight from equal weight, saying the Palo Alto, Calif.-based tech giant "could gain share for several quarters in x86 servers at the expense of IBM/Lenovo."

IBM ( IBM ) recently sold its low-end server business to Lenovo in what was widely seen as Big Blue's bid to shift away from low-margin commodity businesses. The move echoed IBM's decision to sell its iconic personal computer business to Lenovo nearly a decade ago.

In fact, in a note to clients, Reitzes cited that 2005 sale as "a historical precedent for H-P gaining share in a 'commodity business.'"

"We use the IBM divestiture of PC's to Lenovo in 2005 as an analogy and map out the potential for earnings per share upside in 2014 if H-P were to win share in the x86 market at about the same rate it did in 2005 when Lenovo bought the PC business from IBM," Reitzes wrote.

"Given Lenovo is based in China, there could be some concerns from U.S. customers around security and channels may need time to adjust globally," Reitzes argued. "To be clear, Lenovo could be quite a strong competitor long-term in servers -- but for the remainder of 2014 H-P could gain."

On the other hand, shares of Cisco ( CSCO ) were down nearly 1% after Barclays cut its rating to equal weight from overweight.

"We believe uneven demand trends, secular headwinds, and a lack of major catalysts could keep shares range-bound over the next year," Reitzes told clients in a note.

Also in the red were shares of Twitter ( TWTR ) which were off 1.7% and Zynga Inc.( ZNGA ), down 2%.

The Nasdaq Composite Index (RIXF) was up 35 points at 4,315, while the Morgan Stanley High Tech 35 Index (MSH) and the Philadelphia Semiconductor Index (SOX) were each up a fraction.

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This article appears in: News Headlines

Referenced Stocks: CSCO , HPQ , IBM , TWTR , ZNGA

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