EMC Corp shares fell as much as 27 percent after the largest maker of corporate computer-data storage systems said profit and sales trailed forecasts for a second straight quarter.
The shares sank US$7.88 to US$22.15 in late trading. Earlier, they touched US$21.90, their biggest one-day drop in a decade. The stock has fallen 78 percent since reaching a record US$102.64 in September.
The decline dragged down shares of Veritas Software Corp, Emulex Corp and other storage rivals.
EMC customers, which include Goldman, Sachs & Co and Cisco Systems Inc, are spending less as economic growth slows worldwide.
The company, whose refrigerator-size storage devices cost as much as US$2.5 million, is offering incentives and cutting prices to spur sales, hurting profit margins. Sales of EMC's more lucrative software couldn't make up for the hardware slump, investors said.
"The concern right now is that there's a fundamental change in the way EMC does business and that their profit margins will have to come down at a faster rate than people might have expected," said David Brady, a money manager at Stein Roe & Farnham Inc, which owns EMC shares. "Competition and the very poor macro conditions are causing this."
The shares of Veritas, which makes software to manage data storage, fell US$5.08 to US$57.18. Brocade Communications Systems Inc, whose switches are used to speed information among computers and storage systems, lost US$7.97 to US$32.80.
McData Corp lost US$3.93 to US$17.67. Emulex, a maker of circuitry cards that accelerate data traffic among computer and data-storage systems, fell US$6.31 to US$29.51. Network Appliance Inc., whose machines store and deliver files on networks, dropped US$0.97 to US$11.70. StorageNetworks Inc fell US$2.19 to US$12.72.
EMC's shortfall, along with disappointing preliminary profit and sales reports for the June quarter from chipmaker Advanced Micro Devices Inc and BMC Software Inc., quashed investor optimism that computer-related companies' earnings would rebound this year.
In a preliminary report, EMC late Friday said second-quarter profit was US$0.04 to US$0.06 a share on sales of US$2 billion, less than analyst forecasts of 17 cents on revenue of US$2.43 billion, the average estimates in a First Call/Thomson Financial poll.
"Most analysts expected the economic downturn combined with falling hardware prices and competitive pressure to hamper EMC's hardware performance," Merrill Lynch & Co analyst Thomas Kraemer wrote in a report. "The [earnings per share] decline suggests that the company could not offset these influences with higher margin software revenue, which troubles us.''
In the year-ago period, the Hopkinton, Massachusetts-based company had net income of US$429 million, or US$0.19 a share, on sales of US$2.15 billion.
EMC also missed forecasts for first-quarter sales and profit.
In April, it said profit in that period rose 20 percent, less than half of last year's average gain. In May, the company said it would cut 1,100 jobs, or 4 percent of its workforce, to cope with the slowdown in demand.
Until this year, EMC's results had consistently met targets.
The company's stock was the second-best performer in the Standard & Poor's 500 Index in the 1990s, behind Dell Computer Corp. The drop since the Sept. 25 high has wiped out about US$178 billion in market value. The company's market capitalization is now about US$49 billion.
EMC counts 90 of the Fortune 100 companies among its customers, including Citigroup Inc, Merrill Lynch & Co and Home Depot Inc, said EMC spokesman Mark Fredrickson.
Some investors said that even though the company is being hurt by the slowdown in demand for data storage and networking equipment, EMC will benefit when the economy improves and companies start spending again.
"EMC's franchise still is one of the best in the storage area," said Sunil Reddy, a fund manager at Fifth Third Bancorp, which owns EMC shares. "Once the IT [information technology] spending picks up, EMC should definitely be one of the beneficiaries," he said in an interview with Bloomberg Radio.
At least three analysts cut their ratings on EMC stock.
Kraemer downgraded the shares to a near-term "neutral" from a "buy." SG Cowen analyst Richard Chu cut his rating to "neutral" from "buy," and Thomas Weisel Partners analyst Doug Van Dorsten downgraded the stock to "market perform" from "buy.
EMC will report final quarterly results July 18. Spokesman Fredrickson said the company won't comment further on earnings until then. Veritas Chief Financial Officer Ken Lonchar said EMC's shortfall shows that businesses are shifting storage spending to software from hardware.
Lonchar reiterated Veritas's forecast for profit of 19 cents a share for the fourth quarter ended Saturday and said revenue increased 30 percent to 35 percent from the US$370.1 million reported in the same quarter last year. He said EMC's news was weighing unfairly on Veritas's shares.
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