Aruba Networks slides on JP Morgan downgrade
Shares of Aruba Networks (Nasdaq:ARUN) are taking a hit today and are hovering near their 52 week low after JP Morgan downgraded the security technology company to “underweight” from “neutral” on concerns surrounding the company’s sales cycle length and shrinking order sizes in light of the dismal macroeconomic backdrop.
JP Morgan analyst Ehud Gelblum said he thinks lengthening sales cycles and shrinking order sizes could retard the entire wireless local area network (WLAN) market and pressure Aruba’s margins for the rest of 2008. The analyst said he expects the retail segment to be hit the hardest, as it is one of the largest, and as he expects the economic downturn to continue through to 2009.
As a result, the analyst is reducing his 2008 growth forecast for the dependent WLAN market by five points to 28% from 33%, as spending on WLAN is the most discretionary in the realm of IT projects, according to Gelblum.
He now predicts that the company’s 802.11n roll-outs will take longer than expected and could be delayed until 2009.
Additionally, Gelblum said as Aruba invests in international expansion and development of a two-tier distribution system, it could take longer to achieve its 19% to 20% long-term operating margin target.
“We expect elongated sales cycles and shrinking order sizes to plague Aruba through much of 08 … resulting in an increased probability of future earnings misses,” Gelblum wrote in a research note today.
On account of the lower WLAN market outlook and margin pressure, Gelblum lowered his fiscal 2008 and third-quarter revenue and earnings guidance. For the third quarter ending April 30, 2008, the analyst lowered his earnings estimate to a loss of $0.02 from $0.01 and lowered his revenue forecast to $41.7 million from $42.6 million. The consensus of 12 analysts polled by Thomson Financial is for a loss of $0.01 per share, while 13 analysts polled by Thomson Financial are on average forecasting revenues of $42.55 million.
For fiscal 2008, Gelblum lowered his revenue estimate to $174 million from $177 million and reduced his earnings projection to $0.05 from $0.07 per share. The consensus of 12 analysts polled by Thomson Financial is for earnings of $0.06 per share, while 13 analysts polled by Thomson Financial are on average forecasting revenues of $176.85 million.
Shares of Aruba skidded 7.89%, or $0.42, to $4.84 at 12:25 p.m. ET. Shares of Aruba have been trading in the range of $4.63 to $23.85 for the past 52 weeks.
Aruba provides technology that enables secure access to data, voice and video applications across wireless and wireline enterprise networks in the United States and internationally.
For detailed price information and recent news stories about Aruba Networks, click ARUN.
