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Markets Hammered to Start 2nd Quarter

Technology: Profit warnings from a pack of Internet firms signal that the sector's recovery isn't imminent.


Electronic commerce software giant Ariba Inc. led a pack of at least a dozen other Internet companies in issuing profit warnings Monday, signaling that the long-awaited recovery of the tech sector may take longer to arrive than previously thought.

Analysts hoping for a rebound in late summer or early fall said the uniformly poor results from the first three months of the year prompted them to push back those estimates to year-end.

"It's indicative of a long-term sickness in the industry," said Rob Enderle, an analyst for Giga Information Group. "It indicates the market clearly has not bottomed. The bottom is still to come, and we might not even be close."

Amid a barrage of profit warnings, Mountain View, Calif.-based Ariba said its revenue for the first three months of the year was about $90 million, a 125% increase over the same period in 2000 but not enough to turn a profit. The company said it will lose about 20 cents a share, compared with the 5-cents-a-share profit expected by analysts.

Ariba also said it will slash one-third of its staff in a cost-cutting move.

"We were expecting a cut that required stitches, and they actually had to do an amputation," said Jon Ekoniak, senior research analyst with U.S. Bancorp Piper Jaffray in Menlo Park.

Ariba made the announcements after the markets closed. Its shares fell $1.41 to $6.50 in regular Nasdaq trading.

The timing of the latest tech warnings, on the first business day of a new quarter, led some analysts to suspect that the companies had been holding out for the kind of last-minute sales that are typical of the software industry.

But others said it's common for such companies to wait until all the data are in before warning investors of a shortfall.

"They wanted to give a more accurate figure about how bad they missed by," Ekoniak said.

Ariba Chief Executive Keith Krach blamed the shortfall on "the prevailing economic uncertainty," which prompted would-be customers to defer technology spending.

Ariba wasn't alone in blaming revenue shortfalls on the sinking economy. Inktomi Corp., the Foster City firm whose software speeds the delivery of Internet content, said lower-than-expected revenue would force it to report a quarterly loss of 23 cents to 25 cents a share, up from the 4-cents-a-share loss anticipated by analysts polled by First Call/Thomson Financial.

Inktomi said it will cut 25% of its staff to save money.

Inktomi shares dropped 43 cents to $6.22 on Nasdaq before the news was announced.

I2 Technologies Inc. said softer demand squeezed its quarterly profit to 2 cents a share, less than half the 5 cents a share profit expected by analysts. The Dallas-based maker of e-business software said it would lay off up to 610 employees, and the stock market reacted favorably to the news. I2's shares rose 94 cents in Nasdaq trading to close at $15.44.

"I2 was a relatively small miss, and the stock market actually reacted positively to it," Ekoniak said. "Not everything is as bad as we think it's going to be."

But most firms provided little cause for optimism:

* Art Technology Inc., a Cambridge, Mass., software maker, said it expected to report a first-quarter loss instead of an anticipated profit after several deals that were expected to close late in the quarter failed to do so. Art Technology projected a net loss between 19 cents and 22 cents a share for the quarter, instead of the average 9-cent profit forecast of analysts surveyed by First Call/Thomson Financial. Art Tech said it now sees first-quarter revenues of $40 million to $42 million. That contrasts with the $69.6 million First Call said Wall Street had expected. The company's shares plunged 50%, or $6.03, to $5.97.

* Redback Networks Inc., a Sunnyvale maker of computer-networking and fiber-optic equipment, said first-quarter sales were less than forecast and it plans to reduce its work force by 150 people, or 12%. Sales will total about $85 million to $90 million, down from the expected $135.5-million estimate of seven analysts polled by IBES International Inc. The company will report full results later this month. Redback said it will take first-quarter charges of $23 million related to "excess facilities" and $24 million for excess inventory. The company will take $4 million in severance charges in the second quarter. Redback shares fell $1.38, to $11.70 on Nasdaq. The announcement came after the close of regular U.S. trading.

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