Veritas Hit Hard After Dropping Profit Target

Veritas Software lowered its second-quarter revenue and profit guidance, becoming the latest tech company to say the quarter did not measure up to expectations.

Saying enterprise sales were down, particularly in the U.S., the storage software maker lowered its revenue targets to US$475 million to $485 million and per-share earnings to 18 cents to 20 cents.

Heading into the quarter, Mountain View, California-based Veritas had projected revenue of $490 million to $505 million and earnings of 21 cents to 23 cents.

Analysts had been even more bullish, with averages among those polled by Thomson First Call coming in at $501 million in revenue and 25 cents per share in earnings.

The news battered Veritas shares, which shed more than 35 percent in morning trading Tuesday, shaving an estimated $3 billion off the company’s total market capitalization. Veritas is scheduled to report earnings formally on July 27th.

Not Alone

CEO Gary Bloom said that, as if often the case, the quarter turned on the last few weeks. “At the end of the June quarter, our anticipated order flow weakened,” Bloom said in a statement.

Sales in Europe and Asia were following plan, Bloom said, and services revenue remained strong, coming in at $212 million for the quarter. But sales of new software licenses to U.S. enterprises fell short.

It was not immediately clear whether Veritas had lost market share or was simply suffering from an overall pullback in corporate technology spending. Veritas’ main competitors include EMC, which bought longtime Veritas rival Legato Systems and has transformed itself into as much of a software company as one that specializes in storage hardware.

Analysts said the news was particularly surprising because the storage sector remains a stalwart of growth.

According to Gartner analyst Carolyn DiCenzo, the market grew 8 percent in 2003 and is forecast to continue measured but steady growth as companies wrestle with keeping tabs on critical data as well as complying with numerous regulatory laws regarding data security.

Veritas and EMC have enjoyed the most growth in the sector, DiCenzo told the E-Commerce Times, and remain poised to capitalize on their strong reputations. “This is an area where a trusted company has a huge advantage,” she said.

Reluctant Buyers?

Research firm IDC said storage-management software posted even stronger growth in the first quarter, expanding more than 20 percent over last year. That performance might have lifted expectations to unreasonable levels.

Whatever the reason, Veritas is just the latest company to warn that results are trending below what have become increasingly rosy expectations. Last week, equipment maker Amkor Technology and chip makers Merix and Exar all issued warnings about missing targets.

The warning trend has not been limited to the tech sector. Both Ford and General Motors said June car sales fell short of the mark, and Wal-Mart and Target said same-store sales were down due to weather and other factors.

Upcoming Earnings

The trend makes upcoming earnings reports increasingly important and likely to create a volatile stock market. Yahoo reports earnings this week, as does Alcoa. Many market-watchers are still upbeat about the earnings season, with a majority of companies in all sectors still expected to meet or beat expectations.

Mark Zandi, chief economist at Economy.com, said there have been numerous hints that corporations are still not rushing to spend on information technology despite stronger growth numbers.

“The first-quarter growth numbers showed some hesitation to invest on the enterprise side,” Zandi told the E-Commerce Times. Given the rockiness of the early part of the recovery, he added, CEOs might need to see a longer run of expansion before they’ll boost budgets for capital investments such as new or upgraded technology.

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