PairGain Warning Sparks Sell-Off; Stock Drops 22%
PairGain Technologies Inc. stock dropped more than 22% Friday in heavy trading, a day after the Tustin provider of telecommunications equipment warned of disappointing fourth-quarter results.
Shares fell $2.03 to $7.03 a share in trading of nearly 20.6 million shares, making PairGain the second-most active stock in U.S. markets. PairGain’s daily volume has averaged 2.6 million shares over the last three months.
PairGain said Thursday that its fourth-quarter results would fall significantly short of expectations because it has lost a major customer while stiffer competition is forcing it into a price war, particularly with rival Adtran Inc.
“Considering the news, we certainly expected our stock price to drop,” said Charles McBrayer, the company’s senior vice president and chief financial officer. “It fell within the range we expected.”
Though Adtran is gaining some market share, the Alabama-based firm said Friday that its own fourth-quarter earnings would fall below Wall Street expectations. The company blamed its troubles on phone companies cutting back their orders for DSL products, a technology that helps boost Internet access over regular copper phone lines.
Adtran shares were up 31 cents to $23.44 before the company issued its profit warning and trading was halted on the Nasdaq market.
Analysts had expected PairGain to earn about 16 cents a share for the fourth quarter but were lowering their projections in the wake of the company’s announcement. Steve Levy, an analyst with Lehman Brothers Inc., said he now expects the company to earn 7 cents a share on sales of $63 million.
A year earlier, PairGain had a net income of $12.7 million, or 17 cents a share, on sales of $74.5 million.
Three brokerage firms downgraded their PairGain ratings on Friday: Volpe Brown Whelan & Co. from a “strong buy” to a “buy”; Hambrecht & Quist from a “buy” to a “hold”; and BancBoston Robertson Stephens from a “buy” to a “market perform.”
In addition to acknowledging increased price pressures, the company said it had lost its status as a primary supplier for Bell Atlantic Corp., which recently signed a three-year agreement to purchase Adtran gear instead.
“This [industry price war] is affecting their core business,” said John Todd, a communications analyst with Wedbush Morgan Securities in Los Angeles. “Right now, you have to project out to the end of next year to get an appreciation of the company.”
Bloomberg News contributed to this story.
Sharp Drop
PairGain Technologies stock fell about 20% on Friday after the company warned of disappointing fourth-quarter results. Daily closes on Nasdaq since Oct. 1:
Oct 9: $6.22
Nov. 2: $13.63
Friday: $7.03, down $2.03
Source: Bloomberg News
