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Comverse Technology rattled by profit warning

Faced with a continuing deterioration in spending, the telecommunications software maker says it will miss estimates for the rest of the year.

Faced with a continuing deterioration in spending, telecommunications software maker Comverse Technology said it would miss estimates for the rest of the year.

The news sent the stock plunging more than 33 percent, dropping $13.07 to $25.95 by market close. Comverse competitor Openwave Systems slid 16 percent, down $3.90 to $20.24.

"The capital spending recession and macroeconomic slowdown appears to have spread throughout the developed world," CEO Kobi Alexander said in a release. "Increasingly, customers have postponed discretionary purchases, such as the replacement of competitors' systems, and system and software upgrades."

He also cited delays in building next-generation wireless networks and currency issues as reasons for the shortfall.

Wall Street analysts had been looking for the Woodbury, N.Y., company to report earnings of 43 cents per share for the second quarter, with sales of around $369 million. But Comverse said it now expects earnings of 28 cents per share, with revenue coming in around $345 million. Those figures exclude a previously announced $9 million charge related to layoffs and a $15 million charge to write off investments.

Things don't look any better in the third and fourth quarters. Comverse said it expects to earn 20 cents per share in the third quarter and 23 cents per share in the fourth, for a yearly total of $1.14 per share, excluding charges. According to First Call, analysts had been expecting the company to report earnings of 45 cents per share in the third quarter, 48 cents per share in the fourth quarter and $1.79 per share for the year.

Comverse Technology
Stock price from July 2000 to present.  
Source: Prophet Finance
Revenue figures will also fall far short of expectations. For the year, the company expects to see sales of $1.38 billion, compared with the $1.53 billion expected by analysts.

Analysts were quick to react Wednesday morning. CS First Boston analyst Susan Passoni downgraded the stock from "buy" to "hold," and Morgan Stanley analyst David Raezer dropped his rating from "strong buy" to "neutral."

Raezer pointed to the fact that telecom carriers are increasingly moving to just-in-time ordering and buying smaller capacity chunks, which translates into smaller sales for companies like Comverse. Spending has slowed to a crawl at virtually all telecom companies, and is not expected to pick up again soon.