July 6, 2012 / 5:01 PM / 8 years ago

Acme Packet says weak telecom spending to hit results

(Reuters) - Shares of Acme Packet Inc APKT.O slid as much as 16 percent to their lowest in two years on Friday amid a broad selloff in the technology sector after the network gear maker forecast quarterly results that fell far short of expectations.

Rival Riverbed Technology Inc RVBD.O fell as much as 9 percent, while Juniper Networks Inc (JNPR.N) dropped as much as 4 percent.

Acme, whose customers include AT&T Inc (T.N), Verizon Communications Inc (VZ.N) and Sprint Nextel Inc (S.N), said it continued to experience weakness in its North American business.

The company, whose shares have fallen more than 80 percent since April 2011, had said in May that it expected orders to pick up in the second half of the year.

“We view this as yet another significant setback in the company’s efforts to regain investor confidence following several missteps,” analysts at Lazard Capital Markets said in a client note. “(We) believe the shares will likely be under pressure until signs of both improved execution and spending emerge.”

The slowdown in spending by carriers is hurting telecom equipment vendors just as they were recovering from the 2008 recession and intense price wars.

Slowing growth at Acme’s session border controller business, which makes products that enable calls over the Internet, and intensifying competition are cause for concern, Mizuho Securities analyst Joanna Makris said in a client note. That business accounts for about 80 percent of Acme’s revenue.

“While we appreciate Acme’s pioneer status and historically dominant position in fixed wireline networks, we argue that the company’s current wireless strategy will achieve limited success over time,” Makris said, cutting her price target on the company’s stock by $7 to $13.

Acme’s shares were trading at $15.62 on the Nasdaq in early afternoon trading, after hitting a low of $15.44, making them one of the biggest percentage losers on the exchange.

Acme said it expected a second-quarter profit of 12 cents to 13 cents per share, excluding items and forecast revenue of $66 million to $68 million, down from $79.7 million a year earlier. It expects its gross margin to fall to about 79 or 80 percent, down from 84 percent a year earlier.

Analysts were expecting earnings of 18 cents per share, excluding items, on revenue of $73.9 million, according to Thomson Reuters I/B/E/S.

The Nasdaq Composite Index .IXIC was down 1.6 percent in early afternoon trading after a selloff in tech shares led by business software maker Informatica Corp INFA.O, which dropped as much as 35 percent on concerns over tech spending.

Reporting by Supantha Mukherjee and Sayantani Ghosh in Bangalore; Editing by Joyjeet Das and Ted Kerr

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