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Plunging stock pattern becoming familiar routine

It's becoming an incessant refrain: Analysts downgrade stocks after companies issue earnings warning, and shares plummet.

    It's been an incessant refrain in recent weeks: company issues earnings warning, analysts downgrade stock, and shares plummet.

    On Friday, analysts downgraded software maker Marimba, which warned Thursday that third-quarter earnings will not meet analysts' estimates. Marimba said the shortfall was tied to its inability to conclude several sales transactions in the quarter.

    The Mountain View, Calif.-based company said it expects revenue for the third quarter to be in the range of $10 million to $10.2 million, with a net loss of 13 cents to 17 cents per share, excluding charges of $585,000 for deferred stock compensation. Including the charges, the net loss is expected to be in the range of 16 cents to 20 cents a share, the company said in a statement.

    Analysts surveyed by First Call/Thomson Financial had expected that the company would post a profit of 4 cents a share.

    Marimba makes software that lets companies deliver and update their own software over the Internet. It pioneered "push" technology, which in the mid-1990s was seen as one of the first "killer applications" on the Internet. The technology delivered information automatically to a PC according to programmed preferences, eliminating the need to surf Web sites to gather specific news or information.

    Marimba, which expects to report third-quarter results Oct. 24, also said operating expenses for the third quarter would be dented by a $2.1 million charge for a potential credit loss from a customer.

    News of the disappointing results drove Marimba's stock to new lows. Shares hit a 52-week trough of $4.50 Friday morning, before rebounding to $4.94. That's down 55.6 percent from Thursday's closing price and down 89.3 percent since the beginning of the year.

    Numerous investment companies issued downgrades on Marimba's stock, trimmed their earnings forecasts, and wrote negative research notes.

    Analysts at Morgan Stanley Dean Witter cut their rating to "neutral" from "outperform." Dain Rauscher Wessels analysts downgraded Marimba to "neutral" from "buy."

    Chase Hambrecht & Quist lowered its rating to "market perform" from "buy."

    "We believe that visibility into the pipeline of customers and timing of deals is somewhat cloudy," Chase H&Q analysts Jack Ripsteen and Velin Mezinev wrote. Estimates for fiscal 2000 earnings per share were slashed to a loss of 22 cents from a profit of 13 cents, and fiscal 2001 earnings estimates were cut to a loss of 31 cents from a profit of 25 cents.

    Morgan Stanley analyst Chuck Phillips said in notes that "it will take several quarters for Marimba to rebuild the sales force and have its reps be productive."

    The broader Internet consulting industry has also taken big hits throughout the second and third quarters. Only a year after many Internet consulting companies became Wall Street darlings with unprecedented stock valuations, shares have taken a drubbing as investors try to figure out which ones will survive the shakeout.

    Internet consulting company Razorfish also issued an earnings warning this week, then received a raft of downgrades.

    The New York-based company said third-quarter earnings will decline from the previous quarter because of a larger-than-expected slowdown at European businesses.

    Razorfish shares tanked Friday, bottoming out with a new 52-week low of $4.72 per share. They rebounded to $5, down 42.9 percent from Thursday's closing price and 89.5 percent from the price at the beginning of the year.

    Razorfish said Thursday it expects to earn 1 cent to 4 cents a share in the third quarter, before amortization of intangibles, down from 8 cents in the second quarter. The average estimate of analysts polled by First Call was 8 cents a share.

    Southwest Securities and Lehman Brothers each downgraded Razorfish Friday morning.

    Analyst Steven Birer of Robertson Stephens is reviewing the stock and expressed disappointment with the shortfall, but he was among the minority for his positive comments.

    "We maintain our belief that Razorfish is well positioned to continue exploiting opportunities in the marketplace," he wrote in a research report. "The company's scale, breadth of service offerings and geographic presence make it a strong competitor in providing Internet professional services to the Global 2000, in our view."