SAN FRANCISCO -- Gateway (GTW) found itself in the unenviable position of following a remarkably strong earnings report from IBM (IBM) - Get Report Thursday. And despite posting solid numbers, Gateway is trading lower today.
Gateway was down 2, or 3%, at 67 15/16. Contributing to the weakness was a downgrade of the stock by
US Bancorp Piper Jaffray
analyst Ashok Kumar, who cut the stock to buy from strong buy.
It appears as if Kumar was overly optimistic about the company in the just-reported quarter and the second quarter. He noted that Gateway did beat consensus estimates for the first quarter by 2 cents, but it was still 2 cents below his forecast. And he cut estimates for the second quarter to 55 cents, which is the consensus estimate, from 61 cents, saying the company has missed consensus estimates in the quarter for the last two years.
"We are concerned with increased competitive pressure emanating from excess
channel inventory and aggressive posturing by
in the consumer space," Kumar wrote. "This is in tandem with price degradation in the consumer space and macro weakness in the U.K., which represents over half of the company's European revenues. All of these factors manifest themselves in a malignant landscape."
The Internet sector has done a complete turnaround from Monday's sharp slide, but could be in for more tumultuous times. Some feel that the strong earnings have been priced into the market and another round of profit-taking could ensue.
In his weekly Web report,
BancBoston Robertson Stephens
analyst Keith Benjamin wrote that he was "encouraged by the group's fall at the beginning of the week and discouraged that the correction wasn't sharper and more sustained. We hope it had some cathartic effect, but fear that we may be due for another break after
report next week."
Both Amazon.com and
, which also reports next week, were among the top gainers early today. Amazon.com was up 10 15/16, or 6%, at 201, while eBay was up 14 1/8, or 8%, at 186 1/8.
Also on the upside is
after the company said it was splitting its stock 2 for 1. It was up 8, or 8%, at 104.
Among the losers was
, a provider of email hosting services for Internet service providers. The company reported a loss of 77 cents a share Thursday. Revenue did rise 57% from previous-quarter levels. The stock was down 19 13/16, or 16%, at 98 3/16.
What's Next for Amdocs?
Billing software company
will continue to look for opportunities in the provisioning area after canceling its acquisition plans for Canadian company
late Thursday, the CFO of Amdocs told
in an interview.
On Thursday, Amdocs terminated its deal with Architel, which offers customers operations support to help them set up their billing. Amdocs CFO Doug Baharav said the canceled deal was due primarily to Architel's lessened relationship with ICG Systems, one of Architel's largest customers, announced on April 8 along with an earnings shortfall. "ICG was one of the main factors," he says. "When we signed the deal on March 2, we made certain assumptions, but things have changed."
In the future, "we will cooperate with other companies like we do now with Architel," he says, adding that Amdocs does not rule out the possibility of other acquisitions in the future, including even a renewed bid for Architel at a different price than in Amdocs' original offer of $24.52 per share made on March 2. "We appreciate Architel and maybe" the companies will look at linking up again in the future, he says. "But for now, we decided to terminate and let the dust settle."
David Raezer, an analyst with
NationsBanc Montgomery Securities
, said that he still expects Amdocs to make an acquisition, but it will be a matter of timing.
"I think they are always out there trying to acquire," Raezer said. "They have a pretty nice P/E on their stock to afford acquisitions, but their certainly in no rush. Their core business is healthy, the question is when do they want to expand their product offering beyond just customer care and billing."
In early trading, Amdocs was up 1 1/16, or 4%, at 27 13/16. Architel was down 1 5/16, or 14.5%, at 7 3/4. Amdocs reports second-quarter results after the market close on April 27, but
Baharav declined to comment on the company's earnings outlook.
-- Medora Lee