FileNet Stock Drops 43%; Officials Blame Economy

FileNet Corp.’s stock price plunged 43% Tuesday after the maker of computerized document storage systems announced that it will curb its ambitious hiring plans and may report an unexpected loss for its third quarter ending Sept. 30.

After the announcement, FileNet’s stock fell $3.875 to $5.125. More than 1 million shares were traded, making it the seventh most heavily traded stock Tuesday on the over-the-counter market.

Mark St. Clare, vice president of finance for FileNet, said several prospective customers have delayed decisions to order equipment because of concerns about an expected national recession. As a result, the company will report lower-than-expected revenue.

“These recent delays appear to be directly related to the increasingly negative economic environment,” said Ted Smith, president and chief executive of FileNet.

St. Clare said plans announced in August to expand from 750 employees to 920 by the end of the year have been scrapped, but the Costa Mesa-based company may still hire 15 to 30 salespeople. No layoffs are planned, he said.

For the six months ended June 30, the company reported net income of $3.4 million on revenue of $51.1 million, compared to net income of $2 million on revenue of $37.9 million a year earlier.

James W. Reynolds, an analyst with Wedbush Morgan Securities in Los Angeles, said he expects FileNet to post a loss of $550,000 on revenues of $23 million in the third quarter. That estimate compares to his earlier forecast of $2.2 million in net income on revenue of $28 million for the period. A year ago, the company reported a net loss of $1.8 million on revenue of $18.6 million for the third quarter.

“The magnitude of the economic slowdown has hit capital budgets more strongly than anticipated,” Reynolds said. “Still, the company has a good position in a rapidly growing industry.”

Allen Strand, analyst for Bateman Eichler, Hill Richards in Los Angeles, said he was not surprised by the announcement. He also reduced his earnings estimates to expect a loss of up to $550,000 for the third quarter, but he noted that small technology companies often go through recessions unscathed.

The announcement comes a day after Irvine-based Diceon Electronics Inc., a maker of computer circuit boards and assemblies, said it would lay off 15% of its 1,500 employees. FileNet’s preliminary results will be available Oct. 5.