Analyst reports: PrimeResponse, Ericsson land in the crosshairs

More third-quarter warnings and a lingering lack of enthusiasm in the handheld phone sector cause analysts to draft pessimistic reports on several companies.

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More third-quarter warnings and a lingering lack of enthusiasm in the handheld phone sector caused analysts to draft pessimistic reports on several companies this morning.

PrimeResponse, a Cambridge, Mass.-based company that makes marketing software for the Internet, said Friday it expects its third-quarter net loss to be 38 cents to 44 cents a share.

Analysts were expecting a loss of about 22 cents per share. The company also said in a press release that revenue for the quarter will be no more than $7.5 million, less than the $9.34 million expected.

The warning prompted analyst Alex Baluta of Robertson Stephens to brand the company's third-quarter performance "disappointing," though he didn't change his "buy" rating in a research note published this morning. Analysts at Dain Rauscher Wessels and SG Cowen Securities downgraded the company to "neutral."

That's a far cry from SG Cowen's praise for PrimeResponse less than two months ago, when it began covering the software maker with a "buy" and bullish enthusiasm.

"PrimeResponse has established itself as one of the emerging leaders in the young but rapidly growing e-marketing segment of the eCRM (customer relationship management) market, which is projected to grow at 135 percent annually," analyst Rehan Syed wrote in a research note dated Aug. 7.

"With its combination of technical strength, as evidenced by its blue-chip customer list, a seasoned management team with significant and relevant experience, and the evolution of the market to more complex needs, we believe that PrimeResponse is well positioned to become one of the stronger players in this emerging space," Syed wrote.

But SG Cowen's downgrade after PrimeResponse's warning shows how quickly companies fall out of favor on Wall Street, which has reacted harshly in recent weeks to a string of earnings warnings from technology companies.

PrimeResponse sank to $3.75 in early trading today, down 6.25 percent from Friday's closing price and nearly 90 percent below its 52-week high of $37 per share. It rebounded to $4 per share in midday trading.

PrimeResponse is not the only stock to founder in the wake of an earnings warning.

Last week, Apple Computer shares dove 50 percent when the company announced that September sales were less than the company had predicted. Priceline.com warned that its revenues would fall about 10 percent short of analysts' expectations, and its shares plunged 42 percent. Eastman Kodak's stock dropped nearly 25 percent after the company disclosed its earnings will fall short of expectations by about 15 percent.

Intel threw the entire tech sector into turmoil Sept. 21, when it said revenue will miss expectations by 3 percent to 5 percent. The chipmaker's shares sank more than 20 percent overnight on the news, shaving off about $80 billion in market capitalization and denting the value of countless mutual funds and personal portfolios.

Flagging sales of handheld telephones have also dinged several technology bellwethers lately, including Swedish phone giant Ericsson.

Several analysts in the past week have downgraded Ericsson's Telefonaktiebolaget LM division, the Stockholm-based subsidiary that develops and produces advanced systems and products for wired and mobile communications in public and private networks. The handset division accounts for 20 percent of the parent company's yearly revenue.

Lehman Brothers cut its estimate on Ericsson this morning, based on slower demand for handsets. UBS Warburg maintained its "buy" rating.

Analysts Adnaan Ahmad and Alec Shutze at Merrill Lynch maintained their near-term "buy" on the parent company Friday but reduced their estimates for 2000 by about 10 percent because of slower than expected growth in the consumer products division.

Smith Brothers International Advisory Services announced today that it is maintaining its "buy" rating but downgrading its third-quarter and fiscal-year earnings estimates. The financial institution believes that Ericsson's consumer-products division will lose roughly $7.7 billion (7.5 billion Swedish kronor) this year, instead of the expected loss of $6.7 billion (6.7 billion Swedish kronor).

"We had hoped that Ericsson had improved its position as component tightness has begun to ease, but this is not the case," Smith Brothers wrote in a research report issued today. "Although we still believe Ericsson is on track to bring its handset division back to profits during 2001 second quarter, we now believe that inventory write-downs will hurt 2000 third-quarter earnings."