Tech Industry

2HRS2GO: Market sells on profits these days

You folks are so hard to please.

Network Appliance (Nasdaq: NTAP) yesterday reported a solid fourth quarter report. The company's products speed up data access on corporate networks. Network Appliance not only sold plenty of filers and caching devices in the April quarter, but sold more than analysts expected.

Fourth quarter results topped consensus expectations slightly on EPS and more than slightly on revenue. Network Appliance has boosted year-over-year revenue growth in each of the last three quarters, including 120 percent in the fourth quarter. Not bad for a company currently on pace for $1 billion of revenue annually.

Recent market ailments have dragged down Network Appliance on Wall Street. Going into today, the stock had lost 44 percent of its value since peaking in March. Brokerage firms Salomon Smith Barney and A.G. Edwards this morning upgraded Network Appliance to "buy" ratings. Robertson Stephens reiterated a "strong buy" recommendation.

So what do you do? Beat the stock down again. Shares of Network Appliance (Nasdaq: NTAP) were down 1 11/16 shortly before noon today.

Or consider Sycamore Networks (Nasdaq: SCMR). The optical network hardware vendor in the third quarter beat bottom line estimates and hurdled revenue forecasts. and expects to keep adding customers on a consistent basis. The stock lost 51 percent of its value over the last two and a half months.

And today it goes down again. SCMR tumbled more than 7 points in the first two hours of trading this morning.

You can see the same phenomenon for Ciena (Nasdaq: CIEN) and Autodesk (Nasdaq: ADSK).

If you really care to try, you can dig up thimbles of doubt on each of these stocks. Sycamore and Network Appliance won't be able to sustain their growth as the revenue base grows. Ciena still relies far too heavily on few customers. Everybody still thinks Autodesk is just a CAD of a company.

Still, it's merely nitpicking. Anyway, those doubts just as easily could have been raised when the stocks were shooting higher just less than three months ago. Why be picky now?

Granted, some of these stocks ran up in recent weeks. Sycamore, for example, bounced off its recent closing low of 51 a month ago to climb as high as 92 1/4 before yesterday's earnings report. And even with today's decline, Sycamore remains hugely valued at a market cap of more than $20 billion, or more than 470 times estimated earnings in fiscal 2001.

Faced with those valuations in a tenuous market, some or maybe even most of today's sellers believe it never hurts to take profits while you can. Sell on the news.

But most of the companies that reported positive quarters recently aren't going to get worse in the near future, and many will probably improve because they're in rapidly growing markets. Fiber optic networks and enterprise storage markets won't slow soon.

And then you'll want to get back in when the stock market returns to bullishness. Of course, to reacquire those stocks, you might have to use the proceeds from today's sales. Minus taxes.

It's an expensive cycle. And a self-created one. 22GO>