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Veritas shares stumble on outlook

Shares of the data-management software maker are rattled after the company significantly lowered its forecasts for the rest of the year.

Shares of data-management software maker Veritas Software were rattled Wednesday after the company significantly lowered its forecasts for the rest of the year.

Veritas was off $9.51 to $40.91, or 19 percent, shortly after the opening bell.

The company now expects revenue to grow in the 25 percent to 35 percent range in 2001, far below the 35 percent to 50 percent growth it reiterated just a few weeks ago, when storage maker EMC lowered guidance for the current quarter. EMC matched that guidance today, but said that the economy would continue to be tough.

Sales for the second quarter rose 42 percent from the year-ago quarter to $390 million--no small feat in an economic climate that has mauled most tech companies. But it was just shy of Wall Street's expectations of $391.3 million.

Veritas posted a net loss of $129 million, or 32 cents per share, including accounting adjustments for acquisitions.

And pro forma results, which exclude the amortization of goodwill; intangibles and developed technology; in-process research and development costs; acquisition and restructuring costs; and income tax adjustments, were in line Wall Street's expectations. The company posted a pro forma profit of $80 million, or 19 cents per share, up from 13 cents per share in the year-ago quarter.

License growth was weaker than expected, rising only 30.6 percent year over year, although services grew 90.9 percent from the previous year. The company gets about three-quarters of its revenue from licenses.

Analysts expressed concern today that things could get worse for the company if its European and Asian business does not hold up.

"We worry that Veritas might see their overseas business weaken, given the slowing international revenues at other hardware and software vendors, presenting additional risk to second-half numbers," wrote William, Blair & Co. analyst Laura Lederman.

But Veritas is still probably one of the better bets in the software sector, given the overall economic trends, analysts said.

"The stock will come under some near-term pressure based on these more modest growth prospects," wrote SG Cowen analyst Drew Brosseau. However, the analyst maintains a "strong buy" rating based on the company's franchise position in the storage market and its solid business model that offers an unusual combination of high-growth, visibility and potential benefits.