Foundry slides on slower sales, suit

Shares fall 5 percent after the company announces a double dose of bad news: It sees slower-than-expected sales for the current quarter and it's being sued.

2 min read
Foundry Networks' shares fell 5 percent Friday after the company announced a double dose of bad news: It is seeing slower-than-expected sales for the current quarter, and it's being sued by rival Nortel Networks.

Foundry's stock fell 38 cents to close at $7.50 Friday after the company warned in a Securities and Exchange Commission filing Thursday that its first-quarter sales are lower than expected because of the slowing U.S. economy.

In addition, Nortel sued Foundry in mid-March, accusing the company of infringing several of its patents for networking equipment, according to the SEC filing. Nortel is seeking monetary damages and an injunction that prevents Foundry from using the patented technology unless the company agrees to license Nortel's patents, a Nortel spokesman said.

IBM has also sent Foundry a letter accusing the company of infringing on IBM's patent, the SEC filing said. Foundry and IBM representatives on Friday said no suit has been filed. "IBM vigorously protects its intellectual property," said an IBM spokesman, who declined further comment.

Industry sources, however, believe the IBM patent in question has to do with the company's network processors--chips used to power networking equipment.

"We're digesting the validity" of the claims, said Foundry Treasurer Mike Iburg, who declined further comment.

Foundry, which builds equipment that speeds Net traffic for businesses and Internet service providers, competes against Nortel, Cisco Systems, Extreme Networks and others networking companies. Like its rivals, Foundry has been hit hard by the cooling U.S. economy and slower sales to telecommunications service providers.

Iburg on Friday declined to be specific about how the slower-than-expected first-quarter sales will affect the company's bottom line. Foundry, which will report first-quarter financial results April 25, previously expected to rake in $100 million to $110 million in revenue for the first quarter, which ends Saturday.

Foundry, whose stock reached a high of $152 in the past year, was once a darling of Wall Street after posting five consecutive profitable quarters since going public. But the company has struggled since announcing a profit warning during the previous fourth quarter.

Foundry in January reported fourth-quarter net income of $20.4 million, or 16 cents a share, on revenue of $105.1 million.