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Foundry plummets despite reporting profit

Shares plummet 21 percent despite the company's report of a fivefold increase in profits that smashed Wall Street analyst predictions.

Foundry Networks' shares plummeted 21 percent today, despite reporting a fivefold increase in profits yesterday that smashed Wall Street analyst predictions.

Foundry's shares today fell $26, or 21 percent, to $98.13 by market close.

Financial analysts believe Foundry's shares fell because its sequential revenue growth of 27 percent paled in comparison to recent quarterly results from two other young networking companies. Juniper Networks recently announced sequential revenue growth of 80 percent, while Alteon WebSystems shot up 77 percent.

"Foundry was in the unenviable position of having to release its results on the backside of two white-hot growth stories," Salomon Smith Barney analyst B. Alexander Henderson said in a report. "Investors are likely to...make the erroneous assumption that Foundry should have produced similar results. In our opinion, the performance of Foundry was strong."

Foundry announced second-quarter earnings that beat Wall Street predictions by 3 cents on soaring sales of its network equipment.

Excluding non-cash charges, Foundry's second-quarter net income was $23.5 million, or 19 cents per share, compared with income of $5 million, or 5 cents per share, during the same period a year ago. Analysts expected Foundry to earn 16 cents per share, according to a survey by First Call/Thomson Financial.

Second-quarter revenue rose 269 percent, from $24.1 million last year to $88.8 million this year.

Including its non-cash charges, Foundry's second-quarter profits were $22.5 million, or 18 cents a share, compared with $2 million, or 2 cents per share, during the same time last year.

Foundry builds network equipment that speeds Net traffic for businesses and Internet service providers. The strong quarterly earnings represent the company's fourth consecutive profitable quarter since it went public last September.

Foundry's gross margins rose slightly, from 64.5 percent last quarter to 65.7 percent.

"We hit all our major objectives--revenue, profitability--and now we're higher...with gross margins, and we have our new products out," said Foundry chief executive Bobby Johnson, referring to recently released high-end routing devices intended to compete with Cisco Systems and Juniper Networks.