Sept. 24 (Bloomberg) -- Big U.S. computer networking
companies will have higher third-quarter earnings, overcoming a
summer slowdown and profiting from a wave of new products.
No. 1 Cisco Systems Inc. will report a profit increase,
while earnings at smaller Bay Networks Inc. and Fore Systems Inc.
are expected to fall. Ascend Communications Inc. is expected to
have higher earnings, although analysts reduced their estimates.
Networking equipment makers' sales are rising at more than
20 percent a year as corporate customers build up their systems
that link computers. Even slow-moving telephone companies are
showing signs of buying equipment for their push into networking
services, analysts said.
``Existing networks need to be upgraded to run at higher
speeds and to cope with more users,'' said Noel Lindsay, an
analyst at Deutsche Morgan Grenfell.
3Com Corp., the second-largest company in the industry,
reported earnings yesterday of 48 cents a share for its fiscal
first quarter ended Aug. 31, up from 43 cents in the year-earlier
quarter. The results matched analysts' estimates.
In a conference call with investors and analysts, 3Com
Chairman Eric Benhamou said networking industry sales are
increasing at 30 percent to 50 percent a year. Companies are
seeking to update their networks to do more business with
customers over the Internet and to cope with more multimedia
information. At the same time, more small companies are starting
to link up their office computers.
Reasonably Confident
Cisco will report its fiscal first-quarter earnings in the
first week of November. The quarter, which ends Oct. 31, is just
half over and can't yet be forecast with great accuracy.
Nevertheless, analysts are reasonably confident that Cisco will
meet forecasts of 58 cents a share, based on the average of 32
analysts surveyed by IBES International Inc.
In the year-earlier period, Cisco had profit from operations
of $320 million, or 47 cents a share.
Cisco's sales and earnings are benefiting from new product
introductions. Its line of Catalyst switches for office networks,
introduced earlier this year, is selling well, analysts said.
Cisco recently began selling its new high-speed router, the
GSR 12000. The product has been keenly awaited for a year, with
Internet service providers hoping it will help reduce bottlenecks
on the global computer network.
``It's nice to start taking orders for a new product in the
final month of a quarter,'' said Therese Murphy, an analyst at
Smith Barney.
Beating Estimates?
Bay Networks is in the midst of a turnaround, with new
products and a management overhaul leading it back from last
year's losses. Analysts are expecting earnings of 18 cents a
share, down from 25 cents in the year-earlier quarter. Still, Bay
could beat the average estimate, said analyst Murphy.
``They came into the quarter with a great order backlog,''
she said.
Fore Systems also is inspiring more confidence than earlier
this year. In the previous two quarters, the Warrendale,
Pennsylvania-based networker issued profit warnings, citing
sluggish demand and new competition for its asynchronous transfer
mode, or ATM, switching equipment.
Analysts expect it will meet expectations of 6 cents a share
for its fiscal second quarter ending Sept. 30, down from the year-
earlier's 14 cents.
``Fore recently won a high-profile contract to supply
equipment to Microsoft's network,'' said Furman Selz analyst
Martin Pyykkonen.
Ascend Descends
Ascend could be the big disappointment of the quarter,
analysts said. For the second quarter in a row, the company has
prompted analysts to reduce estimates, as it faces delays on its
56 kilobit-a-second modems, used by Internet service providers to
link subscribers onto the Internet.
Ascend's earnings are expected to be 32 cents a share,
according to the average of 30 analysts surveyed by IBES. That's
down from estimates of more than 35 cents back in August,
although its up from the year-earlier level of 29 cents.
Ascend is facing weakness in the Japanese market and problems at
home with its 56K products, said Salomon Brothers analyst Peter
Swartz. ``It will be a stretch for them to meet the new
expectations,'' Swartz said.
Ascend is offering big discounts on its flagship product,
the Max, which includes the 56K modems, Murphy said. Her estimate
for Ascend this quarter is 24 cents a share.
``They're in the penalty box with a lot of their
customers,'' Murphy said.
Still, with the summer slowdown over, analysts are looking
forward to better revenue growth, and hence earnings growth, from
most networkers in coming quarters. Several companies have
reduced too-high levels of inventory at their wholesalers, Swartz
said.
``The good news is that revenue growth has troughed in the
quarter now ending,'' he said.
3rd-Qtr Year-Ago Number of
Company Estimate EPS Analysts
Ascend $0.32 0.29 30
Bay Networks^ 0.18 0.25 25
Cisco+ 0.58 0.47 32
Fore* 0.06 0.14 16
^Fiscal first quarter ending Sept. 30.
+Fiscal first quarter ending Oct. 31.
*Fiscal second quarter ending Sept. 30. |
