H&Q favorites ASND, CSCC, PAIR
><FONT SIZE=4>Hambrecht & Quist LLC - Spot Report</FONT SIZE=4> - June 4,
1996<BR><BR>
> Mid-Quarter Update - H&Q Telecom Equipment Sector
>- By Joe Noel
><p>
>We are once again expecting strong performances from the companies within
the H&Q
>Telecommunications Equipment sector. This sector continues to be driven by
the
>expansion of bandwidth requirements and by the drive to build infrastructure in
>order for service providers to compete in the newly developing competitive
>communications landscape. We are also starting to see an acceleration in
>international sales due to increased international infrastructure build out of
> both traditional telephony and Internet related services.<P>
>
>We are once again expecting the biggest upside surprises from the stocks that
>we are currently rating or have recently been rating "STRONG BUYS". These
include
>Ascend Communications (ASND), Cascade Communications (CSCC), PairGain
Technologies
>(PAIR). We are seeing that the business at these three companies is
especially
>strong...<P>
>
>High Speed Data Over Copper<P>
>We believe one of the most important industry sub-sectors within the telecom
>equipment universe will include the companies that are involved in
technologies
>that will allow telecommunications carriers to carry high speed data over the
>existing copper infrastructure. <P>
>
>Over the past few quarters we have seen significant back pedaling by many of
>the RBOCs relative to their plans to deploy higher speed plant technologies,
>such as fiber optics and hybrid fiber/coax, in the local loop sections of
their
>networks. Due to this change of direction, we believe that the majority of
local
> loops (the wires that connect the telecom user to the telephone company
central
>office) will remain copper for at least the next five years. During this
coming
>five year period, we expect that the telephone companies will see growing
demands
>to carry an increasing amount of high speed data across the copper network.
As
>these demands develop we expect that the telephone companies will need to
>seriously consider newer technologies such as HDSL and ADSL for use in
Internet
>access, telecommuting, and video delivery. We also expect that voice traffic
>will be integrated into these technologies so that the average residential
>consumer will be able to receive all applications across a single pair of
copper
>wires. <P>
>
>We believe that PairGain Technologies will remain as the leader in this
developing
>market, but we also believe that Adtran (ADTN), Teltrend (TLTN), and
Westell (WSTL)
>all stand to benefit from this trend. We are currently rating PAIR a
STRONG BUY, but
>do not have ratings on these other players...<P>
>PairGain Technologies (PAIR) - PairGain remains our top pick in this
sector. We are expecting PairGain to beat
>our current estimate of $0.37 EPS on revenues of $43.1 million. We believe
that
>these results will mainly be driven by sales of the core HDSL product to
the telcos.
>Over the next few quarters we are expecting sales of the company's new
PG-Flex to
>start ramping. Two RBOCs have recently indicated that they will begin
accepting
>shipments during the third quarter. In addition, we believe that there is the
>possibility of additional upside from shipments of this new product to the
>international market. We are very comfortable with PAIR's positioning in
the ADSL
>market. It is our belief that the ADSL market is a late 1997 and 1998
story and that
>no company will see any substantial revenues until that time. We fully
expect PAIR
>to be a leading supplier to this market. <P>
>
>Excerpted from Hambrecht & Quist Spot Report, June 4, 1996. Copyright
Hambrecht & Quist, LLC.
>All rights reserved. Additional information available upon request. <br>
>Hambrecht & Quist LLC maintains a market in these stocks.<br>
>Hambrecht & Quist LLC has been an underwriting manager, or co-manager, or
has privately
>placed securities of these companies within the last three years.<br>
>Options are available on these issues.
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