Xylan Shares Slide After Earnings Forecast Lowered

Calabasas-based Xylan Corp. on Tuesday said it expected its second-quarter earnings and sales to lag the previous period amid lower-than-expected shipments of networking equipment.

The announcement sent its shares tumbling $3 to close at $14.25 in Nasdaq trading. So far this year, Xylan shares have fallen almost 40%.

In the first quarter, the computer-networking company earned 13 cents a share on sales of $48 million.

Xylan was expected to earn 14 cents a share in the second quarter, based on a survey of six analysts by IBES International Inc.

Xylan’s sales and earnings will fall sharply from the first quarter because of lower sales to International Business Machines Corp., and problems with a chip supplier that delayed sales of one of Xylan’s new networking switch products, said Noel Lindsay, an analyst at Deutsche Morgan Grenfell Inc.

The lower sales to IBM was the biggest problem, Lindsay said, because Xylan management suggested it may last for several quarters. A big run-up in inventories of Xylan products at IBM may be followed by a sharp and enduring cutback in sales to the world’s largest computer maker, he said.

“IBM has torpedoed plenty of other companies this way in the past,” Lindsay said.

The analyst said he’s still trying to assess the future of the Xylan-IBM relationship.

Lindsay slashed his earnings forecast for this quarter by half, to 7 cents a share from 14 cents. He reduced his revenue forecast to $45 million from $54.8 million.

That’s a sequential decline from the first quarter’s 13 cents a share and revenue of $48 million.

In the year-earlier second quarter, Xylan earned 6 cents a share on revenue of $28.2 million.