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Earnings warnings deflate some tech stocks

Sour earnings news claims more victims, as several technology companies experience the wrath of investors after announcing lower-than-expected forecasts.

    Sour earnings news claimed more victims today, as several technology companies experienced the wrath of investors after announcing lower-than-expected forecasts.

    Visual Networks, a maker of software that helps companies manage computer networks, took the biggest hit after the company said earnings for the year will be more than 50 percent lower than estimated.

    Other companies issuing earnings warnings today included Orckit Communications, Gtech and CapRock Communications.

    Rockville, Md.-based Visual Networks said it expects pro forma earnings of 1 cent a share for the second quarter, well short of consensus expectations of 6 cents a share among analysts surveyed by First Call.

    Shares of Visual Networks fell $14.25, or 54 percent, to close $12. At one point during the day they reached a new 52-week low of $9.69, well below their 52-week high of $87.50. Volume was almost 20 million shares, compared with the stock's average daily volume of about 831,000.

    The company also said it anticipates $32.2 million in revenue for the quarter, down from $30.5 million for the previous quarter. Merrill Lynch had estimated the company would generate $36 million in revenue.

    Visual forecast third-quarter revenue of $30 million and a loss of 3 cents a share. For the fourth quarter, revenue will be $32.5 million, and earnings per share will break even. Analysts surveyed by First Call had put earnings per share for the year at 43 cents, well above the company's new estimate of 17 cents.

    Visual attributed the shortfall to its recent acquisition of Avesta Technologies, a deal that was valued at $415 million and cost the company 6.5 million shares.

    "The nearly doubling of the size of our company and the organization of the combined sales force has proven more challenging than with our other acquisitions," Scott Stouffer, Visual's chief executive, said in a statement.

    Several analysts responded by downgrading the shares. Bear Sterns cut Visual Networks to "neutral" from "buy"; Morgan Stanley lowered its rating to "outperform" from "strong buy"; and Merrill downgraded to "neutral" from "buy." Raymond James, however, raised its rating to "strong buy" from "market perform," which is used to classify stocks that are expected to track the overall performance of the market.

    Meanwhile, earnings news caused further casualties in the tech sector. Gtech, a company that runs lottery systems for state and international governments, fell $2.94, or nearly 13 percent, to close at $19.81 after the company said earnings would not meet analysts' forecasts for the second quarter and the full year.

    Revenue will be $15 million to $21.5 million lower than expected for the quarter. Gtech posted revenue of $242 million for the quarter ended May 27.

    The West Greenwich, R.I.-based company attributed the shortfall to cost overruns and unfavorable developments involving contracts with the state of Rhode Island and the Colombian government. The company also announced the resignation of its chairman and CEO, as well as its chief operating officer.

    Shares of CapRock Communications fell $5.94, or 33 percent, to close at $12 on volume of 4.4 million shares, almost 25 times the stock's average of 178,000 shares. The stock set a new 52-week low of $11 compared with its high of $58.50 during the same time span and has fallen 64 percent this year.

    The Dallas-based company said it expects a loss of 50 cents to 53 cents a share, compared with previous analysts' expectations of a 15-cent loss.

    CapRock, which builds fiber-optic networks, blamed the shortfall on a large customer that canceled a "dark fiber" contract that would have generated $30 million in revenue.

    Shares of Orckit Communications also took a pounding after the company warned late yesterday that it will report a loss of $1.60 to $1.70 a share for its second quarter. Analysts surveyed by First Call were expecting a loss of 21 cents a share.

    The Tel Aviv, Israel-based maker of DSL Internet access products blamed a shortage of chips caused by "an internal production problem" at the company's chip vendor.

    The stock fell $4.25, or 24 percent, to close at $13.75 and hit a new 52-week low of $13.13. The stock has traded as high as $92.75 during the same period and has fallen 60 percent this year.

    Today's warnings were the latest in a string issued recently by tech companies.

    In the past three weeks, at least 10 companies have issued preliminary warnings that their quarter will fall below Wall Street's expectations. Consequently, their shares took a beating. Among other recent examples:

    • Entrust Technologies, a security software maker, yesterday announced a delay in closing sales for its Public Key Infrastructure systems. That delay is expected to result in earnings of 2 cents a share, compared with Wall Street's expectations of 8 cents a share. Entrust shares plummeted 52.5 percent to close at $36.63 yesterday.

    • Database maker Informix warned this week that flat revenues and a strong dollar overseas would push its earnings to 1 to 3 cents a share--substantially lower than the 12 cents analysts had expected. Informix shares fell 37 percent to close at $4.66 following the news.

    • Computer Associates shares fell to a new 52-week low yesterday after the company warned that Y2K-related issues slowed sales in the quarter. CA said its revenues will likely fall between $1.25 billion and $1.3 billion, compared with analysts' expectations of $1.65 billion. CA's shares hit a new low of $28.50 before rebounding slightly to close down 42 percent at $29.50.

    • BMC Software suffered from a similar fate with Y2K-related issues, and its shares took a hit yesterday. Like CA, the company touched a new 52-week low of $21.31 as it fell nearly 40 percent. BMC said it expected its revenues to fall between $365 million and $375 million--less than half of Wall Street estimates.

    • Xerox warned last month that second-quarter earnings will be closer to 30 cents per share than the 42 cents Wall Street expected. The shares sank 19 percent to $20.58 the day of the announcement.

    • Computer maker Emachines said last month it expected to post a per-share loss of about 30 cents per share, far wider than the 1-cent loss analysts expected. The shares fell $1.09, or about 30 percent, to $2.59 after the news.

    • Honeywell said it expected to earn 73 to 77 cents per share in the second quarter, slightly less than the 78 cents analysts expected. Its shares fell $4.56, or 11 percent, to $35.69.

    • Gadzoox Networks warned last month that first-quarter revenues were expected to fall by as much as $5 million from the previous quarter's $15.1 million. The company noted that its second-quarter revenue projections would also likely fall short of analysts' expectations. That news sent the shares down 33 percent to $13.63.

    • Unisys, a computer services company, said continued weakness in its government contract business would likely lead to an earnings shortfall. Unisys said its earnings were expected to come in between 18 and 20 cents a share, compared with analyst projections of 37 cents. That warning sent the company's shares down 30 percent to $16.50.