Gartner Falls 27% After Releasing a Dreary Forecast for 2000

Gartner said it would earn 80 to 90 cents a share in the next year, far below the $1.05 a share expected by analysts.
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Wall Street investors slammed the

Gartner Group

(IT) - Get Report

today, forcing the stock to fall 27% after the information-technology consultant predicted a dreary outcome for its next fiscal year.

Much of the news coming out of the Stamford, Conn.-based company today was unfavorable as Gartner reported profits fell 14% in its fourth fiscal quarter, missing Wall Street's forecasts. But the disturbing information for analysts came when Gartner said it would earn 80 to 90 cents a share in the next year, far below the $1.05 a share expected by a consensus of analysts polled by

First Call/Thomson Financial


Shares fell 3 11/16 to 9 7/8 in midafternoon trading.

"They are going through a transition -- trying to re-invent themselves," said Sandra Notardonato, an analyst with

Adams, Harkness & Hill

, who gives Gartner a market perform rating. Her firm has not done any underwriting for Gartner.

Notardonato pointed out that Gartner's revenue derived from its core business, which was 22% in 1998, fell to 10% in 1999. She expects the stock to drop further to 8% to 10% in 2000.

The problem with Gartner's core business, she said, is that the company has already penetrated 60% of the technology research market, essentially saturating it. It was not until recently that Gartner began looking for new opportunities, a step taken by starting its Internet research unit in July.

"It's a big company and to continue to grow at a 20% to 25% pace is tough," Notardonato said. "It still remains to be seen whether it will work."

In attempting to redevelop itself, Gartner said it will invest $50 million to $60 million next year in its Internet business. The investment will come through adding consulting opportunities, ramping up its e-business by recruiting and hiring workers, and improving its Web-based delivery.

"We are focusing our investments on building our e-business capabilities and assets through people, systems and deliverables, and on aggressively growing our services organization in response to changing client demand," Regina Paolillo, chief financial officer, said in a statement.

In the quarter ended Sept. 30, Gartner said its net income fell to $20.4 million, or 20 cents a diluted share, from $23.9 million, or 23 cents a share, in the comparable quarter a year ago. Analysts polled by First Call predicted 23 cents a share.

Revenues rose 18% to $734 million from $624 million in the comparable 1998 quarter.