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Cognos chopped on revenue concerns, downgrades

    Despite topping earnings numbers for its third quarter, shares of Cognos Inc. (Nasdaq: COGN) dropped over 37 percent Friday on disappointing sales numbers and analyst downgrades.

    The business intelligence (BI) software company's stock dropped 10.06 to 17.

    After market close Thursday, the company topped analyst estimates by 2 cents, reporting third quarter net income of $17 million, or 18 cents per share, excluding special charges.

    Third quarter revenue jumped year over year, but the company's BI revenue was "modestly" below expectations, according to the company's CEO. Analysts at Merrill Lynch, Deutsche Bank and Prudential Securities thought the problem was worse; all three downgraded the stock and cut estimates on revenue concerns.

    At Merrill Lynch, analysts Scott Phillips and Edward Maguire lowered their rating from "accumulate" to "neutral" and cut revenue and earnings estimates for the company's fourth quarter and fiscal year 2002.

    The thesis of the analysts was that the poor performance was self-inflicted. In a research note, the analysts said they attribute the shortfall to poor execution and deal slippage, while noting that they believe demand for BI and analytical applications remains strong.

    "Cognos' poor results appear to be company specific and not indicative of weakening demand or macroeconomic issues," they added.

    Deutsche Bank analysts also cut the stock to "market performer" from "buy" but took the view that Cognos' revenue woes may be owed to a weakening macro environment.

    "Despite our more cautious view on COGN stock over the next several quarters and near-term uncertainty related to discretionary IT spending, we believe Cognos remains a well-run organization and a leader in the BI market," the analysts wrote.

    Finally, at Prudential Securities, analyst Steve Abrahamson cut the stock to "accumulate", lowered the price target to $30, and reduced earnings and revenue numbers for the fourth quarter.

    Abrahamson took the middle road and attributed the revenue shortfall to both company specific events and a slowing in the overall market conditions.