Foundry gains despite revenue warning

Summary:Foundry Networks jumps 20 percent despite announcing it will miss revenue estimates in its first quarter and staying mum on earnings expectations.

Shares of Foundry Networks jumped 20 percent despite the company's warning that it would miss revenue estimates in its first quarter and its silence on earnings expectations. The revision was not as bad as expected, analysts said.

Shares in the networking gear maker were up $1.24, or 20 percent, to $7.55. Foundry makes switches and Internet routers and provides network management software and product support.

The company said Monday it now expects net revenue to be about $78 million to $81 million. First Call's consensus had pegged the company for revenue of $92.3 million. Foundry attributed the reduced revenue to lower-than-anticipated customer orders and weaker spending in the network infrastructure equipment industry.

Foundry also said it expects to be cash-flow positive for the first quarter and post its ninth consecutive profitable quarter.

That still gives the company a lot of leeway to miss First Call's estimated profit of 13 cents a share. But it looks good compared to competitors such as Extreme Networks, which plunged last week on a warning it will lose up to 8 cents a share in its third quarter.

"Given Cisco and Extreme's previous pre-announcements, we believe this revision was widely anticipated and should result in minimal pressure on shares," wrote Salomon Smith Barney analyst Alexander Henderson in a research note. Henderson, who maintained his "buy" rating said he was also encouraged that "gross margins are likely to come in at 55 percent." Nevertheless, the analyst trimmed his price-target to $6 a share from $18 and slashed 2001 earnings estimates to 20 cents a share from 55 cents a share.

SG Cowen analyst Christin Armacost said investors had expected a lot worse for the company thanks to comparisons with competitors like Extreme. Profit warnings from Nortel and Redback also put Wall Street on edge, she noted.

"Most analysts had expected the company to have a significant quarter-over-quarter decline," Armacost said. Foundry's fourth-quarter revenue was $105.11 million.

Armacost said she doesn't plan to change her "neutral" rating. She said she's waiting for an update on pricing pressure and more visibility on "when the downward spiral will end."

Topics: Cisco, Networking

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