PairGain Warns of Financial Shortfall

PairGain Technologies Inc. warned Thursday that fourth-quarter results will fall significantly short of expectations because it has lost a major customer and one of its investments turned sour.

The Tustin-based designer and manufacturer of high-speed networking systems, which has been the subject of takeover rumors, also announced the appointment of a new president and chief executive, Michael Pascoe, to take over for former Chief Executive Chuck Strauch and former President and co-founder Howard Flagg.

Strauch will continue as chairman of the board and Flagg is now executive vice president for business development.

Pascoe acknowledged that the bottom line is being affected by falling prices but said PairGain’s markets continue to offer significant long-term potential.

Analysts had projected fourth-quarter earnings of 16 cents a share. A year ago, the company earned $12.8 million, or 19 cents a share, on revenue of $74.5 million.

The company’s stock had fallen 84 cents to $9.06 on Nasdaq when trading was halted just before the closing of U.S. markets.

The company’s core business--developing products for high-speed networks used in corporate settings--has come under significant price pressure as competition grows. And although the emergence of new broadband technologies that run over copper telephone wires offers hope for a turnaround late next year, the near-term health of the company will suffer, industry analysts said.

“The upside story of broadband access to the home is probably a mid- to late-1999 story, so they’re going to be limping along here for a couple of quarters,” said John Todd, a networking analyst with Wedbush Morgan Securities in Los Angeles.

In the third quarter, the company earned $12 million on revenue of $76.4 million, both increases over previous years.

In addition to acknowledging price pressures, PairGain said it had lost its status as a primary supplier to Bell Atlantic Corp. PairGain also said it plans to take a $1.5-million charge in the quarter from an unsuccessful investment.