Datum Shares Plunge $18.25 on Sales Delay

Datum Inc.’s stock plunged as much as 42% on Wednesday, as the company warned that a customer’s change in purchasing practices will delay some sales and drop its third-quarter earnings below Wall Street estimates.

Datum, which makes sophisticated timing devices and other wireless communications components, said it will report earnings of 26 cents to 28 cents a share in the third quarter, which ended Tuesday. Analysts had predicted third-quarter earnings to hit 35 to 36 cents a share.

Datum stock dropped $18.25 a share to $27.38 in heavy Nasdaq trading. At one point during the session, the shares fell to $26.38. Volume totaled nearly 4.2 million, more than 29 times the three-month daily average.

In a conference call, Datum’s president and chairman, Louis Horwitz, insisted the company was not at fault for the earnings drop.

“[It] just couldn’t be helped. A customer took an action that caused us a decline,” he said.

The customer is Lucent Technologies Inc., the former equipment arm of AT&T; Corp. and now one of the world’s largest suppliers of communications equipment. Datum makes components for Lucent’s wireless network switches. About 40% percent of Datum’s revenue comes from sales to the New Jersey-based firm, Horwitz said.

Last month, Lucent switched to an inventory system that forces Datum and virtually all other suppliers to maintain ownership of the products until the parts are moved out of storage and actually put to use, Horwitz said.

The new accounting practice cut Datum’s sales by $2.5 million for the third quarter, said officials with the Irvine firm.

A Lucent spokeswoman declined to comment or name other suppliers.

“Lucent told us they were doing this a few weeks ago, and that they planned to make the change by year’s end,” said David Young, Datum’s chief financial officer. “We thought year-end meant December, but it was the end of their financial year in September.”

Before Wednesday, Datum had been a Wall Street darling, with its stock price tripling in the last year. In 1996, Datum’s profit leaped to $1.97 million, from $60,000 the year before, while its sales jumped 37%, to $91.9 million, from $67.3 million.

The stock drop started Wednesday morning, after a report from Hambrecht & Quist analyst Joseph Noel alluded to the accounting switch. Because of the news, Noel switched his investment rating from “strong buy” to “buy.”

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Datum Dives

Just a couple of weeks ago, Datum’s stock, boosted by strong earnings and sales, traded at nearly $50 per share. But after the Irvine-based electronics firm announced Wednesday that its third-quarter earnings would be lower than expected, the price fell to $27.38.

Here’s how the weekly closing prices for the last three months compare with Wednesday’s drop: (line chart)

Wednesday’s close: $27.38

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Revenue, Earnings Trend

Although Datum’s third-quarter sales and net income are below projections, both figures are up from a year ago. Quarterly sales and net income, in millions:

Sales

1997

3rd qtr.: $30.0*

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Net Income

1997

3rd qtr.: $1.5*

* Estimate

Source: Bloomberg News

Researched by JANICE L. JONES / Los Angeles Times