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Since 88% of its revenues come from sales to 15 key clients,


(Nasdaq:AUDC) will not substantially recover until the market does, determines Piper Jaffray. Its analysts lowered their forecasts for the second quarter and year, and reiterated a Neutral rating for the share.

This week AudioCodes reported a 40% drop in its first-quarter 2001 income compared with the fourth quarter, to $13.6 million. From the first quarter of 2000, AudioCodes' revenues increased by only 7%.

The company also reported net earnings of $2.2 million, or 5 cents per share.

The slowdown and spending cuts in the U.S. technology market is the problem, as it is for other companies in its field. AudioCodes develops equipment for voice over Internet systems. AudioCodes reported slow sales for all its products in all its markets, and shrinking orders from big customers and small ones alike.

Most of AudioCodes' customers are CLECs - small telcos based with business models that turn out to be nonviable. Unable to raise more financing on the capital markets, these small telcos fund themselves unable to carry out their grandiose infrastructure programs, which require massive investment.

AudioCodes itself has guided investors to lower expectations. It now expects revenues of $12 million to $14 million in the second quarter, and to earn from 1 cent to 4 cents per share. AudioCodes did not supply guidance for the year, because of the low visibility.

Piper Jaffray accordingly lowered its forecasts for the second quarter from $14.7 million to $13.9 million, and its EPS forecast from 7 cents to 4 cents. For the year, PJ predicts that AudioCodes will record revenues of $56.3 million, instead of the $62.2 million predicted earlier. But the investment bank slashed its earnings forecast from 29 cents pre share to 16 cents.

Robertson Stephens is more pessimistic

Robertson Stephens published a more pessimistic forecast, lowering its second quarter revenues estimate from $12.8 million to $12.1 million. It predicts EPS of 6 cents.

For 2001, Robertson Stephens expects revenues of $51.3 million instead of $53.1 million and profit per share of 8 cents, drastically lower than earlier expectations of 26 cents. It is also half the EPS prediction of Piper Jaffray.

One of AudioCodes' problems is its dependence on Clarent (Nasdaq:CLRN), a phone systems manufacturer that contributed 44% of the Israeli company's revenues in the first quarter. The rest of AudioCodes' customers are small. None contributed more than 10% of its revenues in the last quarter.

The trouble with putting all the eggs in one basket is becoming apparent. AudioCodes stock fell 12.5% after Clarent's shares took a 22% dive after being downgraded by analysts. Until AudioCodes reduces its reliance on Clarent and achieves a stable level of back orders, Robertson Stephens sees no reason to change its long-term Attractive rating.

Despite their worries, both investment banks praise AudioCodes' technology, especially its voice over packet chips.