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Inktomi drops on warning, downgrades

Shares in Inktomi (Nasdaq: INKT) shed 20 percent Thursday after the company warned for its first quarter and was downgraded by a number of analysts.

Inktomi, which makes Internet technology for network caching, saw its stock fall $4.06, or 22 percent, to $14.44. After market close yesterday, the company warned that it would miss revenue and earnings targets for the current quarter because of the slowdown in infrastructure spending.

A host of brokerages cut estimates for the company and downgraded the stock. Morgan Stanley Dean Witter, Prudential Volpe Technology Group and Chase H&Q all slapped Inktomi with downgrades, while Pacific Crest Securities maintained its "market perform" rating.

At Morgan Stanley Dean Witter, analyst Christopher Stix cut the company’s rating to "neutral" from "outperform" and reduced revenue and earnings estimates. The analyst also downgraded competitor Cacheflow (Nasdaq: CFLO), which was lowered from "outperform" to "neutral".

The analyst viewed the problem as sector wide among content networking companies, noting that the sector should see flat to moderate growth until late 2001.

"While we maintain a positive long-term outlook on the sector, we remain cautious over the next few quarters," the analyst wrote in his research note.

Drew Brosseau at S.G. Cowen cut Inktomi to "buy" from "strong buy" and lowered earnings and revenue numbers for fiscal 2001.

In a research note, the analyst said the miss was not surprising given the recent problems at a number of other networking and software companies.

Brosseau said that the company remains well positioned for long term growth and profitability, but the shortfall in the first quarter and lack of near-term visibility led to the cut.

At Bear Stearns, analyst Robert Fagin, while acknowledging the sector-wide slump, also said that Inktomi’s current woes are self-inflicted. According to Fagin, the company needs to make aggressive moves to replace its maturing carrier business.

Analyst David Hilal at Friedman, Billings, Ramsey & Co. was more forgiving, maintaining his "buy" rating.

Hilal said he remains confident in the company’s long-term strategy and believes that the stock's current price takes into account the increased risk profile for the company.

"In the short term, we believe the company will continue to encounter a difficult environment, as customers will remain prudent with their IT spending, resulting in the potential for additional purchase delays and downsized projects. Longer term, we believe Inktomi’s products provide a crucial piece of the Internet infrastructure puzzle and remain cautiously optimistic," he added.