MWAR released another earnings warning for their awful quarter ending June 30. In January, H&Q's lowered estimates for MWAR consisted of $8 million in revenues with $.04 EPS. The warning estimates revenues at just 50% of the H&Q estimate, only $4 million, with a $2 million operating loss. The cause was "lower-than-anticipated sales to large account customers."
By now the market should be wise to the fact that the sector is not slowing, it's just that WIND is gaining market share aggressively. With luck the market will restrict its negative reaction Monday to MWAR, and continue to reward WIND for contributing to an impressive Mars landing over the holiday weekend.
Any of you that follow MWAR and INTS, along with WIND, are probably surprised about the extent of the poor quarter. Why? Because MWAR released press statements over the last few weeks indicating important design wins, suggestive of a company executing well, no doubt recovering from a few soft quarters, and possibly gaining market share. The IBM NC announcement alone pushed the stock up 20% or 30% in a single day.
I believe that MWAR has made a strategic error releasing exuberant announcements when the bottom is falling out of revenues. The issue is not whether or not the press releases were correct technically; the issue is about maintaining credibility with the investment community. Anyone who bought the stock recently on the IBM news, for example, will feel mislead after Monday, and extremely distrustful of the company.
These errors will come back to haunt MWAR when and if it does begin to recover. The market will no longer take MWAR's announcements at face value, and will now condemn the stock to an elongated period of low valuation, until performance has been proven consistently for a number of contiguous quarters.
While WIND has been executing to perfection to win market share, its primary competitors insist on shooting themselves in the foot.
Allen |
