Hewlett-Packard will no longer hold a coveted spot on the Dow Jones Industrial Average (DJIA), S&P Dow Jones Indices announced Tuesday morning before markets opened.
Bank of America Corp. and Alcoa Inc. will also be exiting the index, and the three will be replaced by Goldman Sachs, Visa and Nike. The change will take effect Friday, Sept. 20, when markets close.
The change signifies that the tech giant has recently been out of step with the overall market and U.S. economy, which the DJIA is designed to mimic, analysts said. S&P Dow Indices said that the share prices of the companies set to be cut were too low and the change will help diversify the index. HP first joined the index in 1997.
"What it basically says is that it is a completely boring company. It's a laggard, it doesn't reflect the larger economy," said Carter Lusher, an independent industry analyst. "It's more of an indictment of HP of that it just isn't changing as fast as it should have."
HP's focus on commodity technology, Lusher said, made it more difficult for the company to mirror the market.
"The simple fact is that HP, for all its storied history, is frankly a developer of commodity technology, and commodity technology, commodity consumer products, commodity anything doesn't reflect the overall economy," Lusher said.
Jayson Noland, senior research analyst on IT systems and networking at Baird Research, said he didn't think the HP case was anything special.
"There's a lot of legacy tech in [the DJIA]," Noland said. "They probably had an argument over which one of those to drop."
Other tech companies on the DJIA include 3M, Cisco, Intel, IBM and Microsoft. Noland said the cut could have included any of the tech companies in the index.
Lusher said IBM represents a better bellwether for the tech industry as it constantly works to reinvent itself as the economy changes.
"That's a good bellwether. It makes percent sense to keep IBM and drop HP," Lusher said.
Noland said that, while the DJIA comes with a sense of prestige, it is really an arbitrary pricing index that doesn't always reflect the larger market outlook.
"It's interesting and it's a fun discussion among people but it really doesn't have a long-term impact on the company or the stock for that matter," Noland said.
PUBLISHED SEPT. 10, 2013