Sluggish Economy Keeps Adexa, FreeMarkets Apart
Online auctioneer FreeMarkets Inc. and supply-chain software firm Adexa Inc. mutually terminated a pending acquisition last week. The reason, according to FreeMarkets, is the stagnating economy and delays in gaining regulatory approval. The companies will remain aligned through a joint marketing and sales agreement. FreeMarkets (FMKT-Nasdaq) also agreed to take a 3% equity stake, worth about $6 million, in Adexa. Despite the sluggish economy, FreeMarkets said last week it's on track to meet second-quarter financial estimates. The company expects to report up to $38 million in revenue, a loss of 22 cents per share, and as much as $4 billion in auction volume.

By acquiring Adexa, FreeMarkets had hoped to broaden its role beyond being a provider of business-to-business auctions, or electronic sourcing. Company officials now say the acquisition would have delayed profitability. The online auctions market still holds plenty of opportunity, they say.

Analysts view the terminated merger as positive for FreeMarkets, which is freed of the financial and execution risks of the acquisition. The stock-for-stock deal may have lost its luster for Adexa as well. FreeMarkets' stock price has declined steadily since the merger was announced in February, sending the acquisition price from $340 million to $210 million.

The decision also suggests that some vendors are rethink-ing the value of combining disparate software. Ariba Inc. and Agile Software Corp. called off a proposed merger earlier this year. Joan Hooper, CFO of FreeMarkets, says it makes more sense to link FreeMarkets' services with packaged software via partnerships and open standards. "E-sourcing is decision-based," she says, "and doesn't require up-to-the-minute integration with ERP."

--Alorie Gilbert (agilbert@cmp.com)

Global IT Spending Crunch Hits HP And Sun
It appears North American companies aren't the only ones tightening their belts. Hewlett-Packard (HWP-NYSE) told financial analysts last week that it's run out of places where it can still make a buck because the IT spending slowdown is spreading from the United States and Europe to Asia-Pacific countries and Latin America. Carly Fiorina, HP's chairman, president, and CEO, warned analysts that, as a result, revenue growth for the third quarter ending July 31 could be flat or even down as much as 5%.

Meanwhile, look for a dismal fourth quarter ending June 30 from Sun Microsystems (SUNW-Nasdaq). Revenue is expected to be between $3.8 billion and $4 billion, and earnings per share could be around 3 cents, according to the company. That's quite a drop from the same quarter a year ago, when Sun reported $5.02 billion and earnings per share of 39 cents.

Rob Hall, VP of markets and industries in Sun's global sales organization, concedes that demand around the world is below expectations because "customers are more concerned with concrete return on investments before they move ahead with projects."

--Martin J. Garvey (mgarvey@cmp.com)

Entrust Restructures And Cuts 400 Jobs
Besieged Internet-security vendor Entrust Technologies Inc. (ENTU-Nasdaq) said last week it will eliminate 400 of its 1,100 employees, rename the company Entrust Inc., and consolidate its offices. The restructuring will save between $16 million and $17 million each quarter, says Entrust CFO David Thompson. For the first quarter of 2001, Entrust posted a loss of $20.3 million, or 32 cents a share. Entrust's stock closed at $5.89 on June 8, and the company's share price has fallen steadily since its high of $83.50 last July.

Despite the financial woes from Entrust and other public-key-infrastructure vendors, most analysts remain bullish on the technology. "PKI is inevitable," says Pete Lindstrom, a senior analyst at the Hurwitz Group, adding that although PKI vendors overextended themselves last year, "this is a perfect time to hunker down and get back to what they do best."

--George V. Hulme (ghulme@cmp.com)

Slow Network Equipment Sales Strike Intel
Intel (INTC-Nasdaq) said last week that excess inventory and a robust secondhand market means that sales of chips that power switches, routers, and other networking equipment will remain depressed through the second quarter. During Intel's first-ever midquarter financial update, chief operating officer Andy Bryant said that "the networking silicon business is weaker than we had anticipated."

Analysts say the networking slowdown bodes ill for Intel's attempts to diversify beyond the slumping PC market. "With the myriad of problems in the telco and networking sectors, it's less clear that these markets offer an opportunity to counter the slowdown of the PC market," says U.S. Bancorp Piper Jaffray analyst Ashok Kumar.

Overall, Bryant said Intel is on track to meet earlier forecasts for the second quarter, though he cautioned that results would be "slightly below the midpoint" of earlier forecasts. In April, Intel said it expected to post second-quarter revenue of between $6.2 billion and $6.8 billion, record a gross margin of about 49%, and report expenses of $2.2 billion to $2.3 billion. Intel is to announce final results for the second quarter, ending June 30, on July 17. Analysts expect the company to report per-share earnings of 11 cents.

--Paul McDougall (paulmcd@cmp.com)