Digital Island drops on downgrade

Digital Island (Nasdaq: ISLD) was off 16 percent Monday following a downgrade from Goldman Sachs. The investment firm downgraded three other Internet infrastructure companies on concerns of lower dot-com and enterprise spending.

Shares were off 0.88 to 5.13. Digital Island reported it had beat estimates, but predicted last quarter that it would have increasing losses into 2001.

Goldman Sachs lowered Digital Island from "market outperform" to "market perform," and similarly reduced ratings for Covad (Nasdaq: COVD), off 0.03 to 2.13, based on the "challenging macro environment" for Internet Infrastructure companies.

Anlaysts Matthew J. Janiga (Covad) and Michael Parekh (Island) contributed to a research note that said investor concerns including anticipated continued weakness in dot com spending, and lengthening sales cycles and more tempered infrastructure service spending on the enterprise side suggest the Internet infrastructure sector won't rebound in early 2001 as had been expected.

Goldman also lowered Mpower Communications Corp. (Nasdaq: MPWR), unchanged at and Navisite (Nasdaq: NAVI), down 0.31 to 3.25, from "market outperform" to "market perform."

Goldman did not reduce estimates for any of the companies. A research note added that rating changes on Digital Island and NaviSite reflected reduced growth expectations resulting from continued weakness in dotcom spending, constrained funding environment for telecoms, and potentially extended sales cycles for enterprise customers. Downgrades on Covad and MPower were based on continued funding concerns, operational challenges, as well as evidence of a potential slowdown in consumer and tech spending.

"Despite our short-term cautionary tone, we continue to consider leading Internet infrastructure companies 'core' holdings in any technology portfolio and expect robust performance over the long term," the analysts stated.