Affymetrix (AFFX) announced a first-quarter revenue shortfall last night, and the stock is down 37% to just over $10 as I write. The company said that excluding the $90 million patent lawsuit payment they were awarded from Illumina, they earned approximately $80 million in revenues compared to the consensus expectation for $92.5 million. For the year, they lowered their revenue forecast (again excluding the Illumina payment) from a range of $415 million to $435 million to a range of $400 million to $420 million. The consensus forecast was for $421.1 million.

The company attributed the shortfall primarily to lower research spending by pharmaceutical and industrial customers, which makes sense given the weakness in the economy. However, Wall Street is suspicious that a more important factor to the shortfall is coming from growing competitive pressures, especially from Illumina, in Affymetrix’s expression array business. As a result of the lowered revenue forecast, three brokerage firms lowered their ratings, two to neutral and one to negative.

If the company hits their revised estimates, today’s decline will create an amazing buying opportunity, as this is a relatively small, 3% shortfall with a reasonable expectation — not the kind of news that should take 37% off an already depressed market capitalization. If Wall Street is right, this is just the first shoe to drop in a multi-year period of underperformance, but I suspect the company will report within its forecasted range, but we need to wait for the April 24 earnings call to get more information to make a decision, so I am moving AFFX to a Hold until after the earnings call. I’ll be in touch again if there are any new developments or actions you need to take.

A Note on the Market

The run up to 1370 on the S&P 500 last week did not achieve the escape velocity that I was looking for, and the market was quickly sucked back down to the 1326 attractor level. It is important that for the S&P to close this week over 1315 or so, and preferably over 1326, if the upside scenario is to remain intact. It doesn’t appear that things are getting worse — most of the scare headlines about gas prices and foreclosures are just old news playing out. But the market may decide to stage another scary drop back to 1270 just to build up bearish sentiment and create the energy for the next leg up. I am watching this closely and will have more comments in Thursday’s Radar Report.