Magma Design falls more than 28 percent on 1Q outlook

Shares fell $2.72, or 28.4 percent, to $6.86. They earlier hit a year low of $6.20 after trading in the past year between $8.48 and $15.70.

The San Jose, Calif.-based company said it expects a profit of 7 to 9 cents per share, excluding one-time costs and gains. That's well below Wall Street expectations. Analysts polled by Thomson Financial forecast a profit of 14 cents per share. Analysts typically exclude one-time items.

Cowen & Co. analyst Raj Seth said in an investor note said the company also guided for a fiscal 2009 well below Wall Street expectations after losing four or five major deals in the 2008 fourth quarter.

He said the company had a "big miss."

"We smelled smoke, but not this," he added.

Seth saw an overextended product line as a fundamental problem.

"At the core of the problem is the ongoing transition toward a next generation digital platform while simultaneously rolling out newer products ... Magma got too ambitious and got caught," he said.