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Why Sonus Networks, Inc. Stock Plummeted Today

By Steve Symington – Mar 24, 2015 at 1:42PM

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Is Sonus Networks' drop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sonus Networks (RBBN) were down more than 30% Tuesday as of 1:08 p.m. after the company lowered its current-quarter guidance and initiated a cost reduction review.

So what: Specifically, Sonus states it "no longer expects to receive certain orders ... that had been expected to be received at the back end of the first quarter." As a result, first-quarter revenue is now expected to be $47 million to $50 million, compared to Sonus' previous guidance for sales of $74 million. In addition, Sonus Networks' adjusted loss per share is expected to be in the range of $0.29 to $0.34, compared to previous guidance for adjusted earnings of $0.03 per share. Analysts, on average, were modeling earnings of $0.03 per share on sales of $73.7 million.

Worse yet, Sonus' full-year 2015 revenue will be up to 25% below the midpoint of its previous annual guidance range of $326 million to $330 million. That's well below Wall Street's forecasts, which call for 2015 revenue of $324.9 million.

Now what: As a result, Sonus is undergoing a cost reduction initiative to "help better align the company's cost structure in light of these longer decision cycles." Sonus will announce the results of the cost reduction review when it reports official first-quarter results on April 22.

On the surface it's encouraging that Sonus is blaming "longer decision cycles" for the missed guidance, and not outright lost orders. But it's unsettling, to say the least, that those orders previously anticipated to land in the first quarter are no longer expected to arrive this year. For now, and until investors receive more visibility on why that's the case, I think it would be wise to avoid Sonus Networks despite today's big drop.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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