Despite reporting solid quarters, both Extreme Networks and Redback Networks lost ground Thursday after their stocks were downgraded.
Shares for both network-equipment makers slipped by market close. Extreme Networks fell 11 percent, down $5.38 to $42.50. Earlier, shares touched $38.75. Redback Networks' stock saw a similar drop, down more than 15 percent, or $7.56, to $41. Shares earlier touched $37.38.
Reporting after the bell Wednesday, both companies
posted strong, if not spectacular, sales and earnings in their latest quarter.
Extreme Networks posted a second-quarter profit of
$12.6 million, or 11 cents a share, on sales of $144.7
million Wednesday, matching most analysts'
For its part, Redback snuck past estimates in its fourth
quarter, posting a profit of $7.8 million, or 5 cents a
share, on sales of $114.6 million. First Call analyst
consensus expectations called for a profit of 4 cents a
share on sales just north of $100 million.
While some analysts maintained their respective
ratings on both stocks, a few said earnings weren't
enough to overcome concerns about information technology spending and
lower gross margins. Redback was downgraded by SG
Cowen Securities and Raymond James & Associates while the
ratings for both Redback and Extreme were cut by
Thomas Weisel Partners.
At SG Cowen, analyst Cristin Armacost lowered
Redback's rating to a "buy" from "strong buy" and the
stock's 12-month price target was cut to $65 from $85.
The analyst adopted a cautious stance on Extreme, reiterating a "neutral" rating on the stock because of the
slowdown in IT spending and aggressive pricing
While Armacost remained positive on Redback's outlook
and quality of customer base, the analyst said that
changes in the company's business model, including
significantly lower gross margins and decelerating Short Messaging System (SMS) growth, led to the cut.
Analyst Mark Edelen at Thomas Weisel Partners
downgraded Redback to "buy" from "strong buy." In a research note, Edelen said he believes the
communications sector is in the first third of its slump.
He also cut Extreme to "buy" from "strong buy" based on
the same concerns.
At Raymond James & Associates, Redback was
reduced to "market perform" from "strong buy" along
with a reduction in earnings estimates for fiscal 2001.
On the bullish side, U.S. Bancorp Piper Jaffray analyst
Conrad W. Leifur reiterated a "strong buy" rating on the
stock and raised 2001 revenue estimates on continued
For Extreme, analyst Martin Pyykkonen at C.E.
Unterberg Towbin maintained a "buy" rating on the
Pyykkonen said Extreme has established itself as a
strong second supplier behind Cisco in the corporate
enterprise market but that the company needs to further
penetrate the service provider market for a more
balanced revenue profile.
Staff writer Larry Barrett contributed to this report.