Reuters Company News
Extreme shrs hit record low, revenue plan in doubt
Friday September 27, 3:29 pm ET
SAN FRANCISCO, Sept 27 (Reuters) - Shares of battered network equipment maker Extreme Networks Inc. (NasdaqNM:EXTR - News) fell to a record low on Friday as investor concerns about its revenue goal heightened, according to analysts.
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Extreme shares were down almost 24 percent, or $1.15 cents, at $3.67 in active trade on the Nasdaq Friday afternoon, after dropping 22 percent on Thursday amid a string of lower sales warnings by telecommunications and network gear manufacturers. Broader market gauges continued to head for a fifth straight week of declines.
An Extreme spokeswoman told Reuters it is company policy not to comment on the activity its stock, which traded as high as $128.88 on Oct. 17, 2000.
Telephone giant SBC Communications Inc. (NYSE:SBC - News) on Thursday added to the evidence of troubles faced by network gear makers by saying it would slash capital spending next year by up to 38 percent.
The telecom industry's brutal downturn, financial woes and sharply cut spending have battered network gear makers. The American Stock Exchange Network Index (AMEX:^NWX - News) on Friday drooped as low as 86.56, a 94 percent decline from its lifetime high of 1,401.26 on Sept. 1, 2000 during the Internet boom.
With telecom spending shrinking, network gear makers have looked to "enterprise" customers such as large corporations for support. But now their demand, initially thought to be stable, is in doubt, analysts said.
"Our channel checks have supported our thesis that enterprise customers are tightening their spending budgets, eliminating purchases, deferring buying decisions and downsizing deal sizes," according to a Salomon Smith Barney research note issued Thursday.
That would hurt Extreme, which in July said that 75 percent of its June-ended fiscal fourth-quarter revenues of $113.1 million came from enterprise customers, and that it was focused on improving revenues quarter over quarter.
Near-term risks to Extreme include "weak enterprise demand," Salomon analysts wrote.
Pacific Growth Equities analyst Erik Suppiger said there is growing doubt that Extreme will be able to deliver on its expectation for revenue growth in the current quarter -- especially with No. 1 network gear maker Cisco Systems Inc. (NasdaqNM:CSCO - News) playing tough in a key market.
"We have felt for two quarters now that Extreme's numbers were at risk because they derive 40 to 50 percent of revenues from stackable switches, and Cisco had become much more aggressive in that market," Suppiger said.
"In addition, Extreme has high exposure to international markets," Suppiger said. "In the September quarter, you see a seasonal slowdown in Europe, and we have seen apparent slowing in parts of Asia, including Japan." |
