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MMC Networks plunges on profit warning

Things keep getting worse for network processor maker MMC Networks (Nasdaq: MMCN). The company's stock plunged 21 percent Tuesday after analysts downgraded it following a fourth quarter profit warning.

Shares of MMC were down 4 5/8 to 17 3/8, or 21 percent. The stock had peaked at 57 in late August.

MMC said after the bell Monday that lower revenue from Cisco Systems (Nasdaq: CSCO), the company's largest customer, would take a chunk out of its fourth quarter. The drop extends MMC's slide from October, when its CFO resigned. At the time, MMC warned of bad news ahead due to loss of revenue from IBM (NYSE: IBM).

MMC said Monday that it expects to report revenue of $11 million to $13 million in the fourth quarter of this year and a slight loss. The company said Cisco cut back orders. First Call's consensus for MMC Networks' fourth quarter earnings was a profit of 10 cents a share.

Morgan Stanley Dean Witter said Tuesday it cut its rating on MMC Networks Inc. to "neutral" from "outperform." CS First Boston announced it saw long-term declines for the company, cuttings its fiscal year earnings expectation to 34 cents a share from 45 cents a share for 1999, and cutting its year 2000 fiscal earnings to 29 cents a share from 66 cents a share.

MMC said the lower sales to Cisco are the result of a product transition and delay of a new product. Based on a recent forecast from and discussions with Cisco, MMC now expects fourth quarter sales to Cisco to be less than half the amount sold in the company's third quarter ended Sept. 30.

In October, MMC tanked after its chief financial officer, Uday Bellary, resigned amid news the company would see sales declines in its fourth quarter due to a loss of business to IBM. MMC said IBM's exit from the LAN switch/router business might result in a 5 to 10 percent sequential decline in its fourth quarter.

"While we are clearly disappointed with our expected fourth quarter results, our relationship with Cisco continues to be strong," said Doug Spreng, president and chief executive officer.

MMC also said it is continuing to broaden its customer base, and expects new products aimed at one of the highest growth segments of the market - Layer 3, policy-based switches. Those products begin rolling out in the first half of fiscal 2000.