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RealTime IT News

Respite From Reality

If Wall Street were smart, it would have ended the trading week after Thursday's spectacular breakout. That way we all could have spent the weekend at least entertaining the notion that a recovery is under way.

Alas, there will be trading on Friday, which is unfortunate because it's likely the earnings warnings from Sycamore Networks and Extreme Networks , delivered after Thursday's closing bell, will snap the market out of its brief reverie and reduce the run-up to a one-day romp.

The catalyst for Thursday's breakout -- the Nasdaq soared 8.9%, the Dow registered its second-highest single-session point increase ever and internet.com's Internet Stock Index, or ISDEX, gained an astonishing 15.8% -- was news from PC maker Dell Computer that the company expects to meet revenue and earnings estimates for the first quarter.

But the more important catalyst was the one that didn't appear -- there were no major earnings warnings weighing down the market during regular trading.

It should be a different scenario Friday, as the numbers from Sycamore and Extreme are digested by investors. The early reviews, in the form of after-hours and overseas trading, are predictably negative. After rising $1.41, or 18%, to $9.06 in Thursday's regular trading, SCMR plunged to $6.50 in after-hours action. Extreme surged 25.8% to $16.01 on the Nasdaq Thursday, before sinking to $13.99 after hours.

Optical networking equipment maker Sycamore said it expects a net loss of $38 million, or 16 cents per share, for its fiscal third quarter ending April 28. Consensus estimates called for SCMR to register a net profit of 5 cents per share.

The Massachusetts-based company cited a slowdown in customer orders. Newly revised Q3 revenues of $50 million to $60 million fall stunningly short of previous forecasts by analysts of $151 million in sales. Sycamore will lay off 140 of its 1,100 workers, a 13% reduction.

Switchmaker Extreme Networks, which, like Sycamore, targets telecommunications companies, said revenue for its fiscal third quarter will be $110 million to $115 million, well below Q2 sales of $144.7 million and Q3 predictions of $160 million. Instead of expected net income of 12 cents per share, EXTR said it will instead have a per share net loss of 6 cents to 8 cents. Extreme also will trim its workforce of 1,100 by 132 jobs, or 12%.

While Thursday provided some giddy relief, a sobering gauntlet of earnings warnings and bad quarterly reports lies ahead. Thus, investors shouldn't abandon their defensive posture. The pain isn't ending yet.