Riverbed Technology reported quarterly results below analysts' estimates due to weak spending by businesses and the U.S. government, and it forecast a lackluster second quarter, sending its shares down 8 percent.
Businesses have tightened purse strings amid political and economic uncertainty, while federal spending has slowed due to automatic cost cuts that came into effect in March after Congress failed to find an alternative plan to reduce a yawning budget deficit.
Riverbed gets a little more than 10 percent of its revenue from the government.
The company expects adjusted earnings in the range of 21 cents to 22 cents per share for the second quarter, on revenue of $255 million to $260 million.
Analysts were expecting adjusted earnings of 25 cents per share on revenue of $273.4 million, according to Thomson Reuters I/B/E/S.
The weak government spending and the soft economy also led rivals Juniper Networks Inc and F5 Networks Inc to give disappointing revenue outlooks for the current quarter.
"The government vertical was most notably below our original forecast with particular weakness due to sequestration," Chief Executive Jerry Kennelly said on a call with analysts.
Sequestration is a series of automatic spending cuts that came into effect in March after Congress failed to find an alternative budget plan.
A wide array of companies ranging from U.S.-based Delta Air Lines Inc and US Airways Group to Britain's Smiths Group Plc have warned of lower revenue due to government spending cuts in the United States.
Riverbed expects federal spending to be muted through the first half of the year.
Riverbed, a market leader in the wide area network (WAN) business with its flagship Steelhead products that can boost data flow speeds by up to 100 times, had been relatively insulated from spending cuts until now.
The company bought Opnet, which makes software to manage traffic on networks, last year to counter the impact of the slowdown in its business. Riverbed's annual revenue growth has fallen to 15 percent from 40 percent over the last three years.
"The culprits are weaker federal spending than they anticipated. But they also have integration issues with Opnet. (Sales from) Opnet is expected to decline in the June quarter," FBN Securities analyst Shebly Seyrafi told Reuters.
Seyrafi said network equipment makers and security companies are vulnerable to sequestration. He expects federal spending to improve in the back half of the year, but said it could take even longer than that.
Riverbed's total operating costs more than doubled to $187.9 million in the first quarter ended March 31. Acquisition-related costs rose to $4.1 million from $556,000 a year earlier.
Net loss was $8.1 million, or 5 cents per share, compared with a profit of $6.9 million, or 4 cents per share.
Excluding items, the company earned 23 cents per share.
Revenue rose 35 percent to $246 million.
Analysts on average had expected adjusted earnings of 24 cents per share on revenue of $261.2 million.
Riverbed shares, which have fallen about 26 percent in the last three months, were at $13.68 in extended trading. They closed at $14.85 on the Nasdaq on Monday.