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Brooktrout takes its lumps on profit warning

Analyst downgrades contributed to Brooktrout's (Nasdaq: BRKT) 40 percent drop Friday, a day after the company warned for its fourth quarter.

Shares in the communications hardware and software firm fell 4.5 to 6.38. After market close yesterday, the company said it would miss estimates for its current quarter by a wide margin due to the slump in information technology (IT) spending.

The company said it now expects to post a profit of between 3 cents to 5 cents a share in the quarter on sales of $33 million. First Call analyst estimates had called for a profit of 31 cents a share in the quarter on sales of $41.2 million.

Analysts responded to the news by slapping the stock with two downgrades. Both U.S. Bancorp Piper Jaffray and Southwest Securities cut Brooktrout's stock rating from "buy" to "neutral".

In addition to the lowered rating, analyst Edward R Jackson at U.S. Bancorp Piper Jaffray also revised the company's earnings and revenue numbers for the fourth quarter and fiscal 2000, along with fiscal 2001.

In a research note, Jackson said that he adopted a more conservative stance than management in coming up with the revised figures due to larger concerns regarding the enabling technology segment.

The analyst also said that Brooktrout's relationship with Lucent Technologies and under-performing Brooktrout Software division may excessively expose the company to general macro-economic slowdown in the sector.

At Southwest Securities, analyst Dave Mossberg also reduced estimates for the first quarter and fiscal year 2001. For Mossberg, key concerns were the company's cost-reduction measures along with the company's software division.

"Depending on the effectiveness of expense reduction plans and the state of the telecom market in coming quarters, this could continue to represent a significant drag on overall EPS," the analyst added.