Updated from 2:26 p.m. EST

Investors unlocked their shares of

RSA Security

(RSAS)

Tuesday after an analyst downgraded the stock, citing slower new product sales and overly optimistic March-quarter estimates.

Shares of RSA, known for its security authentication tokens, recently fell $1.94, or 8.3%, to $21.39 on heavy trading.

The selloff came after Jefferies software analyst Katherine Egbert lowered her rating on RSA to "hold" from "buy." Egbert wrote that she believes meaningful sales from one new product -- a secure log-on authentication system for

Microsoft

(MSFT) - Get Report

Windows -- will not arrive until the second half of 2005 vs. throughout the year, as she previously thought.

In addition to expecting slower sales from the Windows product, Egbert said she also believes meaningful revenue from RSA's tokens through a new channel -- to consumers via Internet service providers AOL and MSN -- will not arrive until at least late 2005.

As a result, Egbert believes the current consensus estimate calling for a $700,000 increase in revenue in the March quarter is "unreasonably high." Analysts are currently expecting RSA to earn 15 cents a share on $81.8 million in revenue in the March quarter, compared with 15 cents a share on $81.3 million in sales in the December quarter, according to Thomson First Call.

Instead, Egbert is forecasting a sequential drop in revenue of $1 million, or 1%, to $80 million in the March quarter; her EPS target is in line with the consensus. (Her firm hasn't done recent investment banking with RSA.)

RSA spokesman David Seuss declined to comment on the Jefferies note, citing company policy to withhold comment on new analyst coverage and changes in analyst recommendations.

Meanwhile, Egbert acknowledged that the company's upcoming analyst day on Dec. 9 could prove to be a positive catalyst. "If the company formalizes its '20% operating margin, 20% year/year growth' guidance projection for 2005 next week, we expect the stock to react positively," Egbert wrote.

But at the same time, she said it should become clear at the analyst day that RSA's core token business should yield some share to biometrics, smart cards, digital certificates and other forms of user authentication.

As for the adoption of the new Windows authentication product, Egbert wrote that the high cost of the overall product, ranging from $50 to $100 per customer, is preventing quicker adoption.

RSA's new Windows product offers more secure, two-factor authentication than the standard password login for Windows on the desktop. Under RSA's system, Windows users would be required to enter both a password and a secret personal identification number from a token that changes every 60 seconds.

Similarly, Egbert believes high user costs will also result in a slower-than-expected ramp of token sales through

Time Warner's

(TWX)

AOL service and Microsoft's MSN, which are charging $10 a token plus $2 a month. Microsoft, in particular, has said consumer response through its ISP has been tepid, Egbert wrote.

Egbert said she believes AOL paid RSA $4 million to $5 million upfront for 200,000 to 250,000 tokens, with recognition of the revenue expected over the next two to three years. Upside would only come if AOL sells more than 250,000 tokens.