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Analyst reports: Netopia becomes latest earnings casualty

The company's earnings report disappoints Wall Street, and investors immediately pound the supplier of digital subscriber line routers.

Chalk up yet another casualty of the quarterly earnings slaughterhouse.

Netopia disappointed Wall Street on Wednesday, and investors immediately pounded the Alameda, Calif.-based supplier of digital subscriber line (DSL) routers. The stock hit a 52-week low of $7.50 Thursday morning before a minor rally boosted it to $9.19 by market close.

Netopia shares have dropped 15.85 percent since the close of regular trading on Wednesday. The stock is less than one-twelfth its 52-week high of $92.

Excluding charges, Netopia earned a pro forma income of $801,000, or 4 cents per share, on revenue of $23.6 million in the fiscal fourth quarter. In the same quarter a year ago, the maker of Internet access equipment lost $174,000, or one cent a share, on sales of $13.5 million.

Analysts polled by First Call/Thomson Financial expected Netopia to earn 17 cents a share for the quarter.

The company blamed the shortfall on financing problems among data competitive local exchange carriers (DCLECs), which provide DSL services primarily to business. Netopia's key customers include Northpoint, Covad, Rhythm, Ingram, Jato Communications and Softway.

A half-dozen analysts who issued research notes Thursday morning wasted no time hammering the company.

San Francisco-based investment bank WR Hambrecht was among the most bearish brokerage firms on Netopia, downgrading it to ''buy'' from ''strong buy.'' Analyst Tim Savageaux slashed his 12-month target price from $100 per share to $15 per share--the biggest percentage drop of any analyst who drafted a research note on Thursday.

"The combination of a decrease in revenues and a continued significant operating expense pinch 2001 earnings per share down to 26 cents from 87 cents," Savageaux wrote. "We believe these decreases are a direct result of the company's considerable reliance on (DCLEC) customers whose financial and operational outlook has recently been uncertain. As a result, we are lowering our rating."

Netopia, which also provides Web hosting and communications software to businesses, went public in June 1996. Founded in 1985 as Farallon Communications, the company focused on developing networking products for AppleTalk local area networks. It changed its name to Netopia in 1997 and enlarged its focus to become a supplier of narrowband and broadband Internet connectivity hardware and software to carriers and ISPs.

WR Hambrecht was not alone in its pessimism for Netopia. Kaufman Brothers downgraded Netopia to "accumulate." Frost Securities cut it to "hold" and Pacific Crest cut it to "buy."

Analyst Anton Wahlman at UBS Warburg maintained his "buy" rating but slashed his 12-month target price to $22 from $86. Joseph J. Bellace at Jefferies reiterated a tepid ''accumulate'' rating but shrank his 12-month target price to $20 from $70.

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