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Informatica profit warning hits tech sector shares

By Siddharth Cavale and Nicola Leske

(Reuters) - Software maker Informatica Corp rattled investors with a warning on Thursday about worsening business conditions in Europe, sending its shares down over 25 percent.

Informatica's software, which helps companies pull together data so they can analyze business trends, is used alongside that made by bigger software companies so its weakness often drags down peers.

But analysts said Informatica's problems may be company specific, citing an internal sales reorganization, and said overall tech spending would likely be stable.

Nevertheless, the warning hit shares in other software firms, particularly Qlik Technologies, which closed down 6.2 percent on Thursday. Qlik generates almost 60 percent of its revenue in Europe.

Others such as Teradata Corp dropped 2.2 percent and Tibco Software fell 2.4 percent.

Smaller software companies have taken a hit in the last few months as customers scrutinize deals more closely, signaling a pullback in tech spending. Informatica warned in June that business conditions worsened sharply, triggering a 30 percent drop in its share price.

At the time, the warning led to a big selloff in other tech firms after investors feared that the European crisis was taking a higher toll on tech spending than previously understood.

This time around, Evercore analyst Kirk Materne said it may not be a sign of an overall industry weakness.

Recent discussions with partners and industry analysts "points to a fairly stable environment for data integration tools, so these issues appear company-specific", Materne said.

Kurt Potter, analyst at research firm Gartner, agreed and said there was pent-up demand in Europe for IT spending, especially for data integration.

"All companies are concerned about what's going on in Europe but for the most part there is optimism," he said, adding that regardless of some temporary hiccups Gartner expects "solid and stable" tech spending.

Informatica estimated third-quarter adjusted earnings of 25 cents to 27 cents per share, on revenue of between $189 million and $191 million for the quarter ended September 30, 2012.

Analysts were expecting earnings of 34 cents per share, excluding items, on revenue of $200.8 million, according to Thomson Reuters I/B/E/S.

Informatica closed down 22 percent to $26.03 on Thursday.

Chief Executive Sohaib Abbasi said in a statement that the European revenue shortfall was worse than the company's own expectations and Informatica was taking aggressive steps to offset further disappointment from the region.

Europe, the company's second-largest market, brought in a quarter of its 2011 revenue of $784 million.

Informatica also expects the European revenue shortfall to cause an increase in its third quarter tax rate which will reduce earnings by about 2 cents per share in that quarter.

Materne pointed out that Informatica was tackling its challenges in Europe but that it would take time for changes have an effect.

Informatica had recently appointed a new global head of sales, he said, and " 'aggressive steps' are being taken to address operational challenges".

"But there appears to be no quick fix in terms of improving operational execution, and we expect INFA's EMEA business could continue to weigh on results over the next several quarters," Materne said.

FBN Securities analyst Shebly Seyrafi struck a similar tone.

"INFA made several sales force changes recently, and it generally takes a few quarters for these changes to bear fruit," he said adding that the company is expected to start shipping the Hadoop version of its flagship Informatica 9.5 software soon, which could be an additional catalyst.

The company expects to report its final third-quarter results on October 25.

(Additional reporting by Supantha Mukherjee in Bangalore; Editing by Rodney Joyce, Don Sebastian, Tim Dobbyn and M.D. Golan)

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