On a bad day for technology stocks overall, software companies took an especially hard fall Wednesday as several companies failed to meet growth expectations or were hit with downgrades by Wall Street analysts, or both.
The wreckage included well-known names such as Novell and Intuit. But Internet-related companies were among the hardest hit, with Portal Software (ticker symbol: PRSF) leading the way with a 64% plunge. Shares of Cupertino-based Portal, which makes billing applications used by providers of Web-based services, plummeted $11.88 to $6.75 as at least five analysts downgraded the stock based on its forecast of slower revenue growth.
The Goldman Sachs software index lost more than 7% Wednesday, outstripping the 4% decline in the technology-dominated Nasdaq composite index. The software index is off 27% since Nov. 1--making it the worst-performing sector of the tech industry during that period.
Analysts said the continuing decline in technology shares was due in part to increasing skepticism by investors toward tech stocks in general, and their financial performance in particular.
"The market is starting to focus on fundamentals again," said Brian Eisenbarth, fund manager with Collins & Co., who is betting on more established high-tech companies such as computer maker Sun Microsystems (SUNW), software maker Oracle (ORCL) and Cisco Systems (CSCO).
"These companies have been in business long enough that their business models have had a chance to prove themselves to be legitimate," Eisenbarth said.
In Portal's case, the company reported third-quarter results Tuesday that beat consensus expectations, but the company's revenue growth disappointed industry observers. Analysts noted that license revenue and gross margins were below expectations. Sales growth in North America was a disappointing 2% on a sequential, quarter-to-quarter basis.
Prudential Securities analyst Michael Turtis downgraded Portal to "accumulate" from "strong buy" and slashed his price target on the share to $20 from $75, saying Portal faces increased risks as it tries to shift more of its business to large carriers. Analysts at Goldman Sachs, Merrill Lynch, Banc of America and Robertson Stephens also downgraded Portal's stock.
One analyst, Reg King of Chase H&Q, swam against the tide. He reiterated his "buy" rating on the stock and raised his profit estimates for this year and the next. Portal has new products and the potential for overseas growth that will offset a slowdown in the United States, King said.
