Contract manufacturer Solectron posted its earnings results for the second quarter of the current fiscal year on Monday. Despite troubles stemming from a buildup of inventory and slowing demand, Solectron's revenues met consensus estimates, but the company had to issue a warning for future revenue streams.

Using the oft-repeated "poor visibility" story, analysts were led like sheep to estimate revisions for the current year. From a range of $1.17 to $1.25 in full fiscal year EPS estimates, predictions were lowered closer to the $0.85-to-$0.90 range.

Setting the low end for revised estimates was Credit Suisse First Boston's Herve Francois, who straggled a bit lower than the crowd with an estimate of 78 cents per share for the current year. Guess Solectron didn't quite agree with him.

The next day, Francois issued a follow-up note, "after further discussion with management," again revising his EPS estimates, this time raising his current-year number to 83 cents from 78 cents. He even went so far as to note that "we would argue that our estimates could prove conservative," but not quite as conservative as they were the day before.

Ahead of His Time

Speaking of Solectron...

While the herd of analysts missed the boat on the company, one analyst downgraded the stock more than three months ago. Expressing concerns over revenue related to Cisco Systems ( CSCO), Scott Heritage of UBS Warburg cut Solectron's rating from buy to hold, lowered his earnings estimates and sliced his 12-month price target nearly in half, from $63 to $32.

Heritage was also ahead of the crowd on Sanmina ( SANM - Get Report), downgrading the stock in mid-February following Nortel's warning of a first quarter loss. Since then shares of Sanmina have slid from $35 to below $25. And while Solectron climbed from the $30 to the $40 range in the month following Heritage's downgrade, since mid-January the stock has steadily fallen to just north of $20 on Friday.

Mister Softee's Getting Softer

A somewhat unsettling note Thursday from Goldman Sachs analyst Rick Sherlund lowered his estimates on Microsoft ( MSFT - Get Report) well into the future.

The note starts off all well and good, as far as current economic conditions go. He revised down his estimates for the current quarter and fiscal year, citing that MSFT may have to preannounce for the March quarter "given the preponderance of negative news from the tech sector and more specifically from the PC industry."

The really gruesome part of the note is a subtle line reading, "We have estimated flat to down EPS for each of the next four quarters and flat EPS for fiscal 2002." Uh-oh. Mister Softee has averaged a whopping 42% EPS growth over the last four fiscal years.

To go from 42% growth on average to no growth in two years is scary. What's even scarier: No MSFT analysts are rising to defend the beleaguered software giant.

The Usual Suspects

The analyst community has come under fire a lot recently. Accusations of analysts being soft in their reports on companies, in order to gain or keep underwriting or M&A business for their banks are becoming increasingly common. But beyond suspicion, there's been little for the investment community to go on.

Maybe not anymore. J.P. Morgan issued an internal memo this week to all of its equity analysts -- and picked up by the press -- instructing analysts to seek approval from any corporate client under review before publishing the report. The memo then indicates that changes requested by the company must then either be made to the report, or there must be a clearly communicated reason as to why the changes should not be made, according to an article in The Times of London.

The memo further states that the clients in-house banker must sign off on any note before it is published by the analyst.

Walls have always been in place at banks to prevent analysts from learning about any banking work in progress involving a research subject. But those walls are one-directional, and it looks like there's a moving walkway going through in the other direction.

Off Again, On Again . . . Off Again?

In an odd set of circumstances, likely resulting from the added layers of confusion presented by Reg FD and the legal issues behind it, Goldman Sachs published, rescinded, and then republished a downgrade on Terra Lycos ( TRLY) this week.

On Monday, GS sent out the note by analyst Anthony Noto along with the rest of the morning's research, "downgrading TRLY to Market Perform from Market Outperform due to online ad weakness and integration risks." About a half-hour later, a follow up was issued saying "Goldman Sachs DID NOT downgrade TRLY. There was no action on this stock." Oh.

The next morning, the same downgrade, word for word, was published.

"It was basically sent out in error," said Ed Canaday, a spokesman for Goldman Sachs. "It just hadn't gone through the compliance process."

And it seems that while it was pretty obvious that the downgrade was coming, investors held off on reacting until the second publishing. TRLY slipped by 0.6% on Monday following the rescinding of the note (which occurred before the market opened), and then slipped a broader 4.7% on Tuesday after confirmation of the downgrade.

Whether or not this is a result of recent regulation changes is unknown. But Canaday queried, "I'd be interested to know if this has happened before." Wouldn't we all.