Optical/IP Networks

Sonus, LR Index Bludgeoned

Profit and revenue warnings from Sonus Networks Inc. (Nasdaq: SONS) and Enterasys Networks Inc. (NYSE: ETS) helped fuel selling in the networking sector on Thursday.

The Light Reading Index fell 11.48 (7.85%) to 134.79 in midday trading.

"There were a lot of things happening out there -- and Enterasys warned -- and there was bad unemployment data," said Nikos Theodosopolous, an analyst with UBS Warburg. "It was a combination of things."

Sonus said both earnings and revenue numbers for the 3Q of 2001 would fall below previous guidance of $56.2 million in revenue and a profit of $0.01 EPS. The company now expects $40 million in revenue and a loss of between $0.05 and $0.07 per share.

Wall Street responded promptly by knocking more than half the value off of Sonus shares, as it plunged 3.93 (61.41%) to 2.47 in mid-day trading.

At least nine investment banks fueled the selling in Sonus by downgrading the shares. J.P. Morgan & Co., Prudential Securities, Morgan Stanley Dean Witter & Co., and Dain Rauscher Wessels were among those issuing downgrades.

Most analysts cited further carrier spending concerns as a reason to flee the stock, a theme that appeared to weigh on all the stocks in the LR Index.

"We believe that, despite a solid long-term outlook for VOIP adoption and Sonus's strong competitive positioning, further weakness in the overall economy could continue to pressure service provider spending," wrote JP Morgan analysts Michael Funsch and Benjamin Lu, in a research note.

Enterasys's story was not nearly as gloomy. In fact, its quarterly numbers, released Wednesday night, met expectations. However, company executives indicated its sales outlook has deteriorated.

For the second fiscal quarter of 2002, the company reported revenue of $240 million, a 26 percent increase, compared with the second quarter of fiscal 2001. It recorded pro forma earnings per share of $0.11 per share, an increase from $0.05 in the second quarter of fiscal 2001.

The company, however, warned that government sales has slowed in the wake of the Sept.11 terrorist attacks. Officials said that in the government sector, which represents about 20 percent of Enterasys sales, purchasing has been delayed.

Enterasys shares lost 0.88 (-13.79%), trading at $5.50 at mid-day. --R. Scott Raynovich, Executive Editor of Light Reading http://www.lightreading.com

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