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Blue Coat Is All Wet

The largest percentage loser on the Nasdaq Monday is Blue Coat Systems (Nasdaq: BCSI  ) . The stock is falling after the company announced preliminary third-quarter results that were significantly below expectations.

The 12 analysts who follow the company, whose products control how corporate employees use the Internet, were expecting a year-over-year 57.9% rise in revenue to $39 million. Blue Coat pegs sales at no better than $35.1 million for the quarter ended Jan. 31. Earnings, which were expected to be $0.35 a share, will come in at $0.14 to $0.18.

In mid-November, Blue Coat provided guidance that growth compared with the second quarter would be 4% to 7% and that net income would be $0.30 to $0.34 a share. While the company didn't give a reason for the miss, one analyst reduced the company's rating to market perform.

The acquisition of information security firm Permeo might be at risk. The deal, announced in early January, was made when Blue Coat's stock was trading for $45.72 -- not today's $26.30. The stock-plus-cash deal has a limit of 1.9 million Blue Coat shares and must be approved by Permeo shareholders.

For now, investors are going to have to wait until Blue Coat releases details about its latest quarter. While the company has shipped more than 25,000 "proxy appliances," that's the past, and I'd think investors are a little more concerned with the future.

Sales of the company's products have been growing rapidly. It of course bears mention that competitors include Cisco Systems (Nasdaq: CSCO  ) , Network Appliance (Nasdaq: NTAP  ) , and Novell (Nasdaq: NOVL  ) -- all with strong balance sheets and hearty research and development budgets.

Blue Coat may not fall further because it's still in a growth market. But, until the company can explain its poor results and its future plans, I wouldn't call the stock much more than a speculation.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned.Click hereto see The Motley Fool's disclosure policy.

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