Cabletron Systems Inc warned that it expects net income for the first quarter of fiscal 1998 to be roughly flat with first- quarter 1997 earnings of $0.37 per share – far below analysts’ expectations of $0.50 – sending its shares into a freefall and those of other networking firms down. After a delayed opening on the New York Stock Exchange, Cabletron shares plunged 34%, or $15.50, to close at $30.25. Cabletron says revenue should be in the $360m to $370m range, up from $324m a year ago. The company blames soft demand for shared media and other mature products for the shortfall. The ubiquitous excuse of poor European sales and production delays for the new SmartSwitch products were also cited. The poor sales and product mix problems are also expected to adversely affect overall margins. In response to the news, JP Morgan & Co downgraded Cabletron to market performer from buy, and Merill Lynch & Co cut the stock from near-term neutral from accumulate. Merrill also downgraded Bay Networks Inc to near-term neutral from accumulate. Bay shares dropped $2 to $22.375. Caught in the crossfire, sector bellweather Cisco Systems Inc lost $3.06 on the day to finish at $64.75, 3Com Corp slipped $3.125 to $45.938 and Ascend Communications Inc slid $4.813 to $50.313.
