OK...HERE'S THE HQ REPORTAscend
Communications
H & Q
ELECTRONIC TECHNOLOGY
(ASND/Dec/$35.06) HAMBRECHT & QUIST LLC Joe Noel (415) 439-3609
Notes: a & f SPOT REPORT Reginal King (415) 439-3419
Recommendation: BUY March 25, 1998
RECAP OF OUR MORNING'S COMMENTS
ON ASCEND COMMUNICATIONS
Source: MarketMax
* We believe the risk/reward equation relative to Ascend
(ASND) has changed positively, and we are reiterating
our BUY recommendation on this stock.
* In our opinion the March quarter will be approximately in-line
with our current estimate of $0.25 EPS on revenues of
$303 million. We believe that the odds of a significant
short fall are remote.
* We reiterate our belief that the WAN switching business
may report much stronger than expected results for the
March quarter.
* We are expecting ASND to announce its voice over IP
product enhancements early next week, prior to the
"Voice over IP" conference next week.
* With ASND's strengthening market position relative to
the ATM switching space, we believe it is very likely that
ASND will be able see significant revenues increases
over the coming quarters.
Estimates Q1 Q2 Q3 Q4 FY
`97 EPS ($) 0.31A 0.31A 0.20A 0.24A 1.07A
`97 Revenues ($) 292.7A 311.7A 270.4A 292.5A 1,165.4A
`98 EPS ($) 0.25E 0.29E 0.31E 0.34E 1.19E
`98 Revenues ($) 304.0E 326.1E 347.4E 379.6E 1,357.2E
Revenue Estimates in Millions
52 week Price Range: $22.00-60.00 Current Book Value: $4.88 /sh Revenue(F1996): $546.5 mil
P/E FY98: 29x Cash per Share: $2.40 /sh Shares Outstanding: 198.5 mil
F98Y/Y EPS growth: 11.7% 98 Price to Sales: 5.13x Market Cap: $6.96 bil
Ascend Communications is a leading manufacturer of wide area networking solutions for telecommunications
carriers, Internet service providers and corporate customers worldwide. Major product divisions include (1)
scalable, carrier-class Frame Relay, ATM, IP and Remote Access core switching products; (2) access
concentrator product; (3) Enterprise access products and (4) services and support.
The following is a recapitulation of our March 25th morning's comments on Ascend Communications (ASND):
We believe the risk/reward equation relative to Ascend (ASND) has changed positively, and we are reiterating
our BUY recommendation on this stock.
In our opinion the March quarter will be approximately in-line with our current estimate of $0.25 EPS on
revenues of $303 million. We believe that the odds of a significant short fall are remote.
We reiterate our belief that the WAN switching business (old Cascade business) continues to be very strong.
Actually, we are expecting that reported results from this division may be much stronger than expected. We are
estimating that over 50% and perhaps up to 57% of the March quarter's revenue may be derived come from this
division. The growth of this business somewhat changes the composition of ASND's overall business.
We believe that ASND is currently strengthening their position in the important ATM switching space at the
expense of both Cisco Systems (CSCO) and Newbridge Networks (NN). We view this as quite positive
because while the product's in ASND's traditional core business of access concentrators appear to be becoming
commodity items, ASND's ATM business is still several years away from such status. With ASND's
strengthening market position relative to this space, we believe it is very likely that ASND will be able see
significant revenues increases over the coming quarters.
Of course the downside of Ascend realizing 50-55% of revenues from the WAN switching side of the business
is that the core ASND access server business is by definition weak. We believe it is still too early to determine
the extent to which ASND's competition will affect the long term viability of this business.
We are expecting ASND to announce its voice over IP product enhancements early next week, prior to the
"Voice over IP" conference next week. (For full details relative to these products please see our note dated
February 18, 1998). We believe that the actual direct revenue implications relative to voice over IP
enhancements will be relatively negligible. However, we do believe there is a strong possibility these
enhancements will assist ASND in retaining market share by allowing ASND to assist its ISP customers to
offer additional products to the ISP's customer, and thus, further solidifying ASND's position in certain ISP
accounts. |
