"Cloud" computing, data firms' shares tumble

BANGALORE Wed Oct 6, 2010 5:31pm EDT

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BANGALORE (Reuters) - The 'cloud computing' industry dragged down the Nasdaq on Wednesday after a leading company in the emerging tech sector, Equinix, said it had to lower prices to keep customers.

Companies in the fast-growing 'cloud' business, a term encompassing the shift toward providing software, computing power and data storage online, have seen values grow in the past few months amid a wave of technology acquisitions.

But the shares fell on Wednesday, a day after data center services company Equinix Inc (EQIX.O) warned that its third-quarter sales would be lower than its last forecast as it cuts prices to retain customers.

Its shares closed down 33 percent, a year-low, at $70.34, making it the top loser on Nasdaq.

Shares of Citrix Systems (CTXS.O), another major player in network data, were the second biggest loser on the Nasdaq, closing down 14 percent at $60.15.

"You are starting to see a natural rotation and some profit taking in the cloud computing sector that has been red hot in the last few months," said TD Ameritrade chief derivatives strategist Joe Kinahan. "So those investors that currently own Citrix are reconsidering the valuation at these levels."

Shares of competitor Savvis Inc SVVS.O fell 10.36 percent to close at $19.39, even after the company raised the lower end of its third-quarter revenue outlook by $5 million.

"Clearly, the issue here is what Equinix had to say. There is a lot of concern in the market that Equinix is struggling with price erosion," said Signal Hill analyst Erik Suppiger.

He said the company, which acquired smaller competitor Switch & Data earlier this year, was finding it difficult to transition the latter's customers into its business.

Equinix comments also hurt competitor Rackspace Holding Inc (RAX.N), whose shares fell 11 percent to $23.29, making it the second-biggest loser on the New York Stock Exchange.

Other big losers in the 'cloud' sector included NetSuite Inc (N.N), VMware Inc (VMW.N), Salesforce.com Inc (CRM.N) and F5 Networks Inc (FFIV.O). The Dow Jones U.S. Software & Computer Services Index .DJUSSV closed down 1.14 percent. The Nasdaq ended down 0.8 percent.

Signs of trouble emerged on Tuesday, when Equinix lowered its third-quarter revenue outlook and said it had to offer higher-than-expected discounts to retain long-term customers.

Oppenheimer, which cut its rating on Equinix's stock to "perform," said the reduced outlook raises questions about the management's credibility.

Citigroup, which does not expect "meaningful acceleration" in revenue growth during the second half, downgraded Equinix's stock to "hold." Wells Fargo also cut its rating on the stock to "market perform."

(Additional reporting by Bill Rigby in Seattle and Doris Frankel in Chicago)

(Editing by Don Sebastian, Unnikrishnan Nair)

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