Turkey Day Arrives Early for Tech Firms
On a bad day for technology stocks overall, software companies took an especially hard fall Wednesday as several companies failed to meet growth expectations or were hit with downgrades by Wall Street analysts, or both.
The wreckage included well-known names such as Novell and Intuit. But Internet-related companies were among the hardest hit, with Portal Software (ticker symbol: PRSF) leading the way with a 64% plunge. Shares of Cupertino-based Portal, which makes billing applications used by providers of Web-based services, plummeted $11.88 to $6.75 as at least five analysts downgraded the stock based on its forecast of slower revenue growth.
The Goldman Sachs software index lost more than 7% Wednesday, outstripping the 4% decline in the technology-dominated Nasdaq composite index. The software index is off 27% since Nov. 1--making it the worst-performing sector of the tech industry during that period.
Analysts said the continuing decline in technology shares was due in part to increasing skepticism by investors toward tech stocks in general, and their financial performance in particular.
“The market is starting to focus on fundamentals again,” said Brian Eisenbarth, fund manager with Collins & Co., who is betting on more established high-tech companies such as computer maker Sun Microsystems (SUNW), software maker Oracle (ORCL) and Cisco Systems (CSCO).
“These companies have been in business long enough that their business models have had a chance to prove themselves to be legitimate,” Eisenbarth said.
In Portal’s case, the company reported third-quarter results Tuesday that beat consensus expectations, but the company’s revenue growth disappointed industry observers. Analysts noted that license revenue and gross margins were below expectations. Sales growth in North America was a disappointing 2% on a sequential, quarter-to-quarter basis.
Prudential Securities analyst Michael Turtis downgraded Portal to “accumulate” from “strong buy” and slashed his price target on the share to $20 from $75, saying Portal faces increased risks as it tries to shift more of its business to large carriers. Analysts at Goldman Sachs, Merrill Lynch, Banc of America and Robertson Stephens also downgraded Portal’s stock.
One analyst, Reg King of Chase H&Q;, swam against the tide. He reiterated his “buy” rating on the stock and raised his profit estimates for this year and the next. Portal has new products and the potential for overseas growth that will offset a slowdown in the United States, King said.
Among the other tech stock casualties Wednesday:
* Inktomi (INKT) fell 22%, its biggest one-day loss in a year and a half, on concern the software maker’s stock price is too high given its earnings prospects.
Inktomi, whose software helps speed delivery on information over the Internet, lost $7.88 to $28.38 in trading of 13.5 million shares, more than four times the three-month average. The shares fell as low as $27.25, their lowest price since February 1999.
Inktomi’s stock has fallen more than 85% since March, when it hit a record $241.50. Wednesday’s decline was precipitated by results from Inktomi rival CacheFlow (CFLO), which Tuesday reported fiscal second-quarter revenue that fell short of expectations. Investors are worried that CacheFlow’s disappointing results could signal potential problems with sales of Inktomi’s Traffic Server software that helps speed, monitor and manage delivery of Internet content.
Rather than wait to see if there’s anything to the speculation that Inktomi’s business is in trouble, investors would prefer to sell the stock and put their money into investments they perceive to be less risky, analysts said.
“The market is just going through a complete revaluation. Fundamentally nothing has really changed at Inktomi,” said Robert Fagin, a Bear, Stearns & Co. analyst with a “buy” recommendation on Inktomi.
* Shares of Novell (NOVL) fell 19% after the software maker said fiscal fourth-quarter profit fell below $1 million on slumping sales of its products that run server computers. The company also predicted little revenue growth in the near future.
Novell slid $1.44 to $6 after dropping to a 52-week low of $5.81. Novell has fallen 87% from its 52-week high of $44.56 in February. Profit from operations in the period ended Oct. 31 was break-even on a per-share basis, and sales fell 21% to $273.3 million from $344.6 million in the year-ago quarter.
“We have lowered our revenue and earnings-per-share estimates for the fiscal 2001, given continued weakness in the company’s traditional NetWare products and lack of significant revenue growth from new products,” Goldman, Sachs & Co. analyst Richard Sherlund said in a note to clients.
Sherlund cut his rating on the stock to “market perform” from “market outperform.” He lowered his sales estimate for the current fiscal year by $45 million to $1.13 billion and his earnings estimate to 17 cents a share from 25 cents.
The Provo, Utah-based company is trying to recover from slower sales of packaged software to small businesses and increased competition for its NetWare server software from Microsoft and the Linux operating system.
* Shares of Intuit (INTU), the maker of Quicken personal-finance software, fell 9% after the company reduced its forecast for fiscal second-quarter sales. The shares fell $4.31 to $43.88. Intuit shares have fallen 36% since Nov. 2.
Consumers are delaying purchases of Intuit’s TurboTax tax-preparation software as they plan to use the company’s Web-based tax preparation software to file over the Internet, Chief Executive Steve Bennett said late Tuesday. That will push some sales expected in the second quarter into the third, which ends in April.
“Well-articulated financial guidance is not something we’ve seen from this company in the past,” said Jefferies & Co. analyst Craig Peckham, who maintained his “buy” rating on Intuit. “It caught some investors by surprise in a skeptical stock market.”
Intuit is selling more products directly to consumers and fewer to retailers. That means more sales will be recorded in its April quarter, said Peckham, who predicts the stock will reach $75 in a year. Intuit had seen more sales in January when it sold shrink-wrapped TurboTax software to stores, he said.
Shares of Mountain View, Calif.-based Intuit were downgraded to “add” from “buy” in a report by ABN Amro analyst Glenn Greene.
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The Tech Wreck, By Sector
The November decline in technology stocks has been led by the software sector. By contrast, telecom-related issues, including wireless stocks, have posted much smaller net losses in the November sell-off. Here’s a look at indexes representing major tech sectors and their losses from their 2000 peaks and since Nov. 1:
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2000 Wed. Pctg. change from: Sector (index sponsor) high close 2000 high Nov. 1 Software (Goldman) 644.61 303.14 --53.0% --27.4% Internet (IW) 701.09 330.44 --52.9 --23.5 Biotech (Amex) 811.61 579.75 --28.6 --22.6 Comp. hardware (Goldman) 679.34 437.50 --35.6 --20.6 Networking (Amex) 1,401.26 865.35 --38.2 --15.3 Semiconductors (Philly) 1,362.10 620.19 --54.5 --13.1 Wireless (Philly) 287.47 159.81 --44.4 --13.1 Disk drives (Amex) 139.43 100.74 --27.7 --12.8 Telecom (Amex) 1,750.63 1,109.29 --36.6 --10.8 Nasdaq composite 5,048.62 2,755.34 --45.4 --17.3
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Index sponsors: Amex--American Stock Exchange; Goldman--Goldman Sachs & Co.; IW--Interactive Week; Philly--Philadelphia Stock Exchange
Sources: Bloomberg News, Times research
