PairGain’s Earnings Drop 91%

PairGain Technologies Inc. said Tuesday that its earnings fell 91% in the second quarter, just short of Wall Street’s expectations.

PairGain’s revenue and gross profit margins also narrowed as competition drove down prices in the Tustin-based company’s core business of high-data-rate digital subscriber line products.

“Our efforts to reduce the costs of products here have helped to slow the reducing margins, although we are not expecting any near-term margin recovery,” said Michael Pascoe, PairGain’s president and chief executive. “ We are convinced we have the lowest-cost, highest-performing products on the market.”

The company’s profit for the period ended June 30 fell to $1.1 million, or 1 cent a share, from $11.8 million, or 16 cents, a year earlier. The results included a $1.5-million write-off of a long-term investment and a $1.5-million charge for the previously announced settlement of a lawsuit.

Before special items, the profit amounts to 5 cents a share; Wall Street was expecting 6 cents, according to a survey of analysts by First Call Corp.

Sales fell 16.6%, to $61.2 million from $73.4 million a year earlier. The company’s gross margins fell to 41.4% from 50.8% for the same period a year ago.

PairGain said it continued to invest heavily in its next-generation switching systems for high-speed data networks, causing an increase in operating expenses. But the investment is already beginning to pay off, company executives said, pointing to a $25-million deal with @link Networks Inc., a competitive local exchange carrier in Waukesha, Wis.

Still, Pascoe said, PairGain won’t see significant new revenue from its new system, called Avidia, until next year.

PairGain, which released its earnings report after the market closed, saw its stock fall 69 cents in Nasdaq trading Tuesday, to $11.56.