Competition, Tighter Margins Cut PairGain Profits

Facing increased competition and diminishing profit margins, Tustin-based PairGain Technologies Inc. reported significantly lower earnings and revenues for the fourth quarter.

PairGain, which designs and manufactures high-speed networking systems, said Wednesday that it earned $3.6 million, or 5 cents a share, for the three months, down from $12.7 million, or 17 cents a share, a year earlier. The most recent figure includes a charge of $1.5 million to reflect the market value of the company’s minority investment in a private telecommunications company. Analysts had estimated earnings of 8 cents a share, according to Zacks Investment Research Inc. Revenue fell 18.6% to $60.7 million from $74.5 million.

PairGain announced the results after the U.S. markets closed. The stock closed at $10.44, off 25 cents a share.

The company said gross margins fell to 42% in the fourth quarter from 49.8% in the same period in 1997. Although unit shipments of the company’s T1 access products rose 30%, revenue from those products declined 27% as significant price competition eroded margins, the company said.

For the year, PairGain posted net income of $39.5 million, or 53 cents a share, down 17% from $47.6 million, or 63 cents a share, in 1997. The earnings for the previous year included $2.6 million in merger expenses from PairGain’s acquisition of Avidia Systems in February 1997. Revenue rose slightly to $283.1 million from $282.3 million.