Shares of Peerless Drop 65% on Weak Demand
Peerless Systems Corp. shares tumbled 65% Friday after the El Segundo-based maker of software for copiers and fax machines warned it expects weaker demand for its products and lower profits in coming quarters.
Peerless fell $13.38 to close at $7.25 on Nasdaq, with a trading volume of more than 100 times its three-month daily average. The stock traded as low as $6, its lowest since Peerless went public in September 1996 at $11.
Sales to makers of color printers fell in the fiscal second quarter ended July 31, the company said. Most of the slump came because Minolta Co. of Japan--one of Peerless’ largest customers for color products--sold fewer machines using Peerless software.
“Peerless was supposed to be riding the color wave,” said Kevin Wagner, an Adams, Harkness & Hill analyst who cut his rating on Peerless to “market perform” from “attractive.” Without better revenue from color-laser printers, Peerless doesn’t deserve a stock price above $20 a share, Wagner said.
Peerless said quarterly earnings probably will fall from year-earlier periods for the rest of the 1999 fiscal year ending in January and part of the next year. The company made the warning after reporting its second-quarter earnings late Thursday. It said profit rose 55% to $1.6 million, or 14 cents a diluted share, before charges, in the quarter, a penny higher than estimates. Sales rose 42% to $8.5 million.
New products from printer market leaders Hewlett-Packard Co. and Lexmark International Group Inc. have hurt sales of smaller competitors, who are Peerless’ primary customers, analysts said.
Although hobbled by these problems, Peerless is betting on a partnership with International Business Machines Corp.’s microelectronics unit to advance its position in the low-cost printer controller-board market, said Bill Gott, president of market-research firm Venture Marketing Strategies in San Jose.
Peerless and IBM are developing a microprocessor that will include a printer controller, Gott said. When the chip starts shipping in small quantities to printer makers by year end, it should push color laser prices as low as $2,500 from more than $3,000, Gott said. Even so, Peerless probably won’t see any profit from the technology until late 1999, he said.
*
STOCK WATCH: How Peerless performed. D4
