News that the manufacturing sector grew more than expected boosted the Dow Jones industrial average 47.74 points to 9,997.49. But the Nasdaq was hurt by reports of weak chip sales and a gloomy telecommunications report. The Nasdaq composite index fell 34.65 points to 1,770.78.
HP's acquisition of Compaq will create a company only slightly smaller than IBM and will make it the largest PC company in the world. The combined company will have operations in more than 160 countries, employ more than 145,000 workers, and have annual revenue of $87.4 billion, HP said. Compaq was down $1.27, or 10.28 percent, to $11.08, while HP dropped $4.34, or 18.70 percent, to $18.87.
But there are already hurdles to face: More than 15,000 workers could be laid off, and the company will likely see revenue decline in the next two years.
Wall Street's reaction to the merger has been tepid. Analysts say that the integration of two such large companies will be difficult, and the merger may not solve problems that HP and Compaq have faced. For example, Dell Computer, which can make computers for less than either of the merging companies, will still be hard to beat.
"It is unclear to us at this point how one plus one will equal more than two, if that much," wrote Bear Stearns analyst Andy Neff. While the deal is intended to help the two PC companies take on Dell, analysts said Dell could actually benefit from the distraction that the merger will cause. Dell rose 93 cents to $22.31.
Dataquest this morning cut its forecasts for PC sales in the United States; it now expects a decrease of 10.7 percent in the third quarter and a drop of 1.3 percent in the fourth quarter, compared with the same quarters last year. SoundView Technology Group analyst Mark Specker said this report may cause Wall Street analysts to lower their earnings and revenue estimates for PC-related companies, particularly semiconductor companies.
New data on U.S. manufacturing activity hinted that the sector is starting to recover from a year-long slump, the National Association of Purchasing Management said.
NAPM's business activity index rose to 47.9 in August from 43.6 in July, well above economists' forecasts of a 43.9 reading. A reading above 50 on a NAPM index indicates growth, while one below 50 indicates a decline in activity.
While the sector experienced its 13th straight month of slower growth in August, NAPM's monthly index of factory activity registered its largest rise in five years. Production rose for the first time in eight months, while new orders, an important indication of future manufacturing activity, rose for the first time in 13 months.
Ericsson, the Swedish telecommunications giant, said Tuesday that its current restructuring may not be enough to help it achieve profitability, adding that it expected capital spending for the entire telecommunications market in 2001 and 2002 to sink below last year's levels.
The company also said that sales of phones using General Packet Radio Service technology would not be as strong as expected. Competitor Nokia, meanwhile, said it was on track to begin selling phones with the high-speed Internet access technology in September and ramp up volumes into the millions in the fourth quarter. Ericsson shares plunged 97 cents to $4.01, and Nokia was off 74 cents to $15.
Among other heavily traded tech issues, Intel slipped $1.11 cents to $26.85; Sun Microsystems fell 50 cents to $10.95; Oracle lost 13 cents to $12.08, and Cisco Systems was down 56 cent to $15.77.
Amazon.com was down 35 cents to $8.59. AOL Time Warner rose 15 cents to $37.50, and Yahoo lost 16 cents to $11.70.
Staff and Reuters contributed to this report.