SafeNet reduces income forecast

Internet security company's stock takes a beating

March 30, 2001|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Shares of SafeNet Inc. tumbled as much as 64 percent during trading yesterday after the Baltimore County Internet security company lowered its financial forecasts for the first quarter.

SafeNet's stock, which closed Wednesday at $33.38, dipped as low as $12.06 yesterday. At the market's close, the stock had fallen nearly 62 percent -- or about $20.56 -- to $12.81. SafeNet's stock drop was the biggest yesterday on the technology-heavy Nasdaq stock market.

"It's actually a rather surprising thing," said Brian Foote, an analyst who follows SafeNet for Ryan, Beck & Co. in New York.

Investors drove down the stock price after SafeNet announced that its first-quarter revenue would be 30 percent lower than expected. The company anticipates revenue of about $6 million and net income of 3 cents to 6 cents per diluted share for the quarter.

In January, SafeNet said it expected revenue to be between $9 million and $9.2 million and net income to be between 21 cents and 24 cents per diluted share for the quarter that will end tomorrow.

"The information that we're providing you today is obviously a disappointment, first and foremost for the management and the employees of our company, and second for all our stockholders," the company's chairman and chief executive officer, Anthony Caputo, told investors during a conference call yesterday morning.

"However, it's very, very important from my point of view to reiterate to everyone that SafeNet technology is being broadly adapted," he said.

SafeNet, which changed its name this year from Information Resource Engineering Inc., makes technology that allows companies and their customers to make secure transactions via the Internet.

The company attributed the revised numbers to order cancellations and reduced expectations from accounts with networking companies that have SafeNet technology embedded in their product lines.

"We see buyers in certain segments of our market as being increasingly cautious, and caution increased as the quarter went on," Caputo said.

SafeNet does not anticipate any major layoffs, but expects second-quarter earnings to be similar to those of the first quarter, Caputo said. "The inventory correction that we see among the networking companies is going to persist at least through the second quarter," he said during the conference call.

First-quarter earnings and earnings forecasts for the second quarter will be released April 17.

Yesterday, Ryan, Beck & Co. of New York downgraded SafeNet from a "strong buy" to "hold."

With a small company like SafeNet, it takes only one or two purchase orders being delayed to cause a 30 percent revenue hit for the quarter, Foote said.

SafeNet's customers include Cisco Systems Inc. and Intel Corp. Its revenue is minuscule compared to that of some of its clients, Foote said. So to a customer, delaying an order with SafeNet might be a meaningless line item, whereas to SafeNet it has a strong impact on the quarter.

Still, Foote predicts that network security will show strong growth this year.

"It does not point to a technological problem on SafeNet's side," Foote said of the revised forecast, "and I don't think that it points to an overall demand issue in network security."

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