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Updated from 4:35 p.m. EDT:

A dearth of extreme growth numbers tempered investors' enthusiasm for Internet router and switch maker

Extreme Networks

(EXTR) - Get Extreme Networks, Inc. Report


Despite doubling profits and posting a 153% year-over-year revenue increase, shares of the Santa Clara, Calif.-based company plunged more than 20%, to as low as 86 after hours, after Extreme posted fiscal first-quarter financials.

Extreme's earnings jumped to 8 cents a share, exceeding analysts' consensus expectations by 2 cents. But an unoffical whisper number of 11 cents may have been at work, and some investors were hoping for even hotter revenue growth.

The Goods

"It was a good, solid quarter all around," says

SG Cowen

analyst Christin Armacost, who has a buy on Extreme. SG Cowen managed a secondary stock offering last spring. "I wouldn't characterize it as great, but it was good all around."

Extreme recorded $119.3 million in revenue for the quarter, a 29% increase over the previous quarter. The company's pro forma profit, excluding amortization of goodwill and intangibles, was $9 million, compared with the previous quarter's net income of $5 million and more than double the $4 million of a year ago.

Gross margin rose 1.3 points, to 51.3%, compared with 50% last quarter and 52.1% a year ago, said company executives on a conference call with analysts Wednesday evening. The company said it expects to maintain a gross margin between 52% and 54% for the next three quarters.

Gross margins are a good indicator of price pressure. Extreme's primary competition is


TheStreet Recommends

(CSCO) - Get Cisco Systems, Inc. Report


The company also set revenue guidance for the fiscal year at between $615 million and $635 million, an 11% increase over the $560 million the Street has forecast.

The Extreme Approach

Extreme sits amid a list of new Internet switch makers that promise to make gigabit Ethernet

a simple solution to a very complex array of networking technologies, as CEO Gordon Stitt recently extolled.

Gigabit refers to the amount of freight that can be shipped. Ethernet, a 28-year-old computer-cabling technology, is the standard-gauge railroad the freight is hauled on.

Ethernet was created to cable together one computer to another. Up until recently, it was seen as limited to office environments, but improvements in speed and distance have allowed it to play more of a role in the Internet at large.

Because Ethernet has such wide use, it is seen by some as a simpler glue for holding together different types of traffic on the Internet. If Ethernet catches on, it would mean gear based on the ATM, or asynchronous transfer mode, and SONET, synchronous optical network, protocols could be dismantled.

Christmas in July?

Analysts say Extreme and

Foundry Networks


are mounting a strong challenge to Cisco's dominance of the Ethernet switch market. Though Extreme has been quicker to market with faster boxes, it's not clear if it will unseat Cisco anytime soon.

One reason is vendor financing. Cisco says it is increasing the amount of debt it is extending its customers.

When asked how much Extreme relies on vendor financing, CEO Stitt said it's not an attractive option. "I don't want to say we take a dim view toward it, but I would say we take an extremely conservative view toward that and we would not be aggressively pursuing large-scale vendor financing as a company," Stitt said.