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Citrix tumbles further on earnings warning

Investors continue to pound shares of Citrix Systems after the company warns that revenue and earnings will fall short of analysts' expectations for the quarter.

    Starting today where they left off on Friday, investors continued to pound shares of Citrix Systems after the company warned that revenue and earnings would fall short of analysts' expectations for the quarter.

    The company warned this morning that it is revising its earnings estimates for the second quarter because of slow sales in some of its business units and changes in revenue mix. Citrix now expects to post earnings of 9 cents to 11 cents a share, well short of analysts' expectations of 21 cents a share, according to a survey by First Call/Thompson Financial.

    The Fort Lauderdale, Fla.-based company also predicted it will post second-quarter revenue of $105 million to $110 million.

    "I thought they'd probably miss (expectations), but not to this degree," said Sarah Mattson, an analyst at Dain Rauscher Wessels who previously predicted the company would post revenue of $137 million for the quarter.

    At the end of regular trading today, the company's shares dived $18.94, or 46 percent, to $22.25. Volume topped 94 million shares, more than 13 times the stock's average daily volume of about 7 million shares, making it the most actively traded stock on the Nasdaq.

    Today's pummeling follows a sell-off last week, after the company's chief financial officer canceled a scheduled appearance at the PaineWebber Growth and Technology Conference 2000.

    The stock has fallen more than 60 percent since last Wednesday's closing price of $59.69 and is well off its 52-week high of $122.31.

    Citrix provides software that enables access to Windows NT, Windows 2000 and Unix applications from a range of computing devices.

    The company attributed the revenue shortfall to three factors. First, the company is switching its business model from predominantly shrink-wrap "box" licensing to what is described as a paper/electronic licensing model.

    At the beginning of the first quarter, the company noticed higher than usual sales to end-users from resellers of its shrink-wrapped software products. The company then shipped a large amount of product to compensate for this depletion of boxed inventory.

    At the same time, the company switched to a paper licensing model. The box method generally means that if a company wants software for 100 people, it has to buy 100 boxes of shrink-wrapped software, as a customer would see in a retail store. With the paper licensing model, the customer signs an agreement to buy software for 100 people but does not need to buy as many physical copies.

    Citrix said that in the second quarter, resellers preferred the paper method and switched to that while leaving more boxed inventory on its shelves. Unfortunately, the company must spend six to nine months closing a paper deal before they can count that on the books, as opposed to the other method, which takes three months.

    The company said this transition has occurred faster than anticipated. Mark Templeton, the company's CEO and president also added in a statement that the acceptance of the electronic licensing model by customers will "ultimately have a long-term positive impact on our revenue growth."

    Also, the company is trying to acquire larger accounts. This strategy generates more revenue, but the accounts take longer to close, which disrupts the revenue stream.

    Lastly, the company said its expansion into other markets, especially Asia, has been slower than anticipated.

    Mattson, however, said the company's problems are "more than just a (business model) transition issue." The analyst said that many businesses have been slow to adopt Windows 2000, which has caused a delay in sales of new Citrix products that work with the OS.

    Mattson added that a change in the business model may cause confusion with the sales force.

    Other analysts scrambled today to lower their rating on Citrix. Credit Suisse First Boston cut the shares to "buy" from "strong buy," and Banc of America reduced its rating to "market performer" from "strong buy." Prudential changed its opinion to "hold" from "accumulate," while PaineWebber lowered its rating to "neutral" from "buy."

    Prudential also reduced it estimate for second-quarter earnings to 10 cents a share from 22 cents, and cut its annual profit estimate to 64 cents from 91 cents per share. Banc of America also cut its quarterly earnings estimate to 9 cents from 21 cents a share, and its annual forecast to 60 cents from 87 cents.