The year-2000 problem claimed another victim in the bank technology sector last week when HNC Software Inc. warned investors that first-quarter earnings would not meet expectations.
The San Diego-based company blamed banks' preoccupation with the year- 2000 conversion for crimping sales of its neural networking software for predicting customer behavior.
HNC "may have underestimated" the effect year-2000 considerations would have on its margins, said Robert L. North, president and chief executive. "We are finding cases where customers are more hesitant to make major buying decisions."
Some other bank technology providers have also said that focus on the millennium bug has depressed their earnings. Over the past year, vendors including Checkfree Holdings Corp., Diebold Inc., Jack Henry & Associates, and Phoenix International have cited the problem.
HNC said a preliminary review of the quarter's results suggested it took in $48 million to $50 million of revenue in the period, below analysts' expectations of $52.4 million.
HNC was expected to earn 22 cents a share, according to the consensus analyst estimate tracked by First Call. The company guided expectations lower, to between 15 cents and 17 cents. In the year-earlier quarter it earned 18 cents a share on revenues of $35 million.
Company officials said other events contributed to the revenue shortfall. For instance, one undisclosed insurance customer delayed a large contract at the last minute, while another customer was lost due to consolidation in the insurance industry.
HNC's earnings alert last Wednesday caused its stock to fall 43% on Thursday to $15.50 a share. Thursday's trading volume of 10.2 million shares was 22 times the average. That day HNC authorized the repurchase of 10% of its stock, boosting the price somewhat, but the stock closed Friday at $18.125, down 49% for the week.
Mark Wolfenberger, an analyst at Credit Suisse First Boston, downgraded the stock to "buy" from "strong buy," claiming that HNC seemed "gun-shy" about its ability to predict customer behavior in light of year-2000 concerns and a transition to Internet-based platforms.
HNC's bank customers may be concerned about making the "wrong decision regarding the Web" or getting involved with lengthy implementation projects before the arrival of 2000, Mr. Wolfenberger said.
HNC will formally report its results on April 19.
An HNC competitor, Fair, Isaac and Co., said its president and chief executive officer Larry Rosenberger will resign to assume the role of director of the company's development unit.
The San Rafael, Calif.-based company, which uses credit scoring techniques to rate creditworthiness, is searching for a new CEO. Mr. Rosenberger, 52, who joined the company in 1974 and has led it since 1991, will remain in the position until a successor is found.
Fair, Isaac's board of directors thought it best to carry on with a new leader, though Mr. Rosenberger remains in good standing. The company has been struggling to contain costs as it grows through acquisitions.
It announced a reorganization last month to focus on emerging opportunities in the electronic commerce and telecommunications industries. It also said it would realign existing units to improve its ability to serve financial institutions, which contributed 90% of its fiscal 1998 revenues of $245.5 million.
Fair, Isaac's stock closed Friday at $33.6875, down 9% for the week. It hit a 52-week high of $54.5625 on Jan. 27.