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Electronics for Imaging Falls Further on Brokerage Cuts

Earnings estimates come down in the wake of its lowered guidance.

Updated from March 11

Several brokerages lowered earnings estimates for

Electronics for Imaging

(EFII) - Get Electronics For Imaging, Inc. Report

Tuesday, one day after its shares plunged 20% on reduced first-quarter guidance.

The company, which makes hardware and software for network printing, said Monday it expects first-quarter earnings of 3 cents to 4 cents a share, excluding goodwill amortization and various acquisition charges, on sales of $80 million to $83 million.

Analysts had expected the firm to earn 16 cents per share on revenues of $106.65 million after the company said in late January that revenues and pro forma earnings for the first quarter would be "even with the fourth quarter."


Morgan Stanley


Salomon Smith Barney

lowered estimates to reflect the company's own forecasts and maintained neutral ratings on the stock.

Warburg Dillon Read

also cut its price target to $22 while maintaining a buy rating. The shares were off another 3.8% to $16.99 Tuesday.

"We revised our first-quarter estimates, primarily due to a slowdown in capital spending on color printers and copiers in both the professional printing and office markets," said Guy Gecht, CEO of Electronics For Imaging. "Currently we are expecting the second quarter to improve very modestly over the first quarter."

For the second quarter of 2002, the company said revenues would be "only slightly ahead of first quarter levels, with a resulting modest increase in pro forma earnings per share." Analysts had called for a 22-cent profit in the second quarter.

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"This shows that sales of high end printers have gotten off to a slow start," said James Poyner, an analyst at C.E. Unterberg. Color printers just aren't a priority for many companies right now, he added.

Electronics For Imaging's main customers include


(CAJ) - Get Canon Inc. Report



(XRX) - Get Xerox Holdings Corporation Report

suggesting that these companies also continue to experience difficulty, Poyner said.

Salomon Smith Barney analyst Jonathan Rosenzweig downgraded the stock to neutral from outperform in the wake of the news, saying it could be masking "a greater underlying fundamental problem."

"In the short term, it appears that the recovery is lagging quite a bit (for the company) and without greater cost cutting activity, earnings have suffered substantially," he wrote in a research note. "Looking longer term, questions remain over how well (the company) will use its cash, and we continue to fear the introduction of a color processor by Canon."

Shares of Electronics For Imaging fell 21%, or $4.73, to $17.34.

Other printing stocks declined in sympathy Monday, with

Lexmark International


down 4% to $55.29,

Oak Technology


down 3% to $13.04 and

IKON Office Solutions


down 6% to $13.35.




rose 2% to $21.00. Poyner said the vast majority of H-P's printers are "low end" and that the stock is trading more on speculation about whether the merger with



will go through.

Pension fund Calpers issued a recommendation to vote against the merger with Compaq because of "immediate and potential long-term negative financial risk." Calpers objected to the price tag of the $25 billion deal and the "strategic uncertainty" surrounding the pairing. H-P shareholders are set to vote on March 19 to either approve or reject the deal

Like H-P, Compaq has been trading more on merger speculation than fundamentals recently. The stock rose 13% last week after Institutional Shareholder Services said it would advise shareholders to vote in favor of the merger. But the data storage sector, in which Compaq is a leader, has taken a beating recently amid concerns over weak demand.

Data storage stocks were weak again Monday, with



down 5% to $32.90 after Bank of America Securities analyst Shaw Wu trimmed his earnings estimates on the stock. Wu also cut estimates for



although the stock rose 2% to $11.58. Shares of Compaq were down 2% to $11.57.