SUMMARY AND CONCLUSIONS
Having just released slightly better than expected earnings last
week, we are surprised that Fore's stock has weakened as much as it has
(down to just under $14 from $17). Fore's comments at an investment
conference yesterday seemed to be consistent with its guidance/outlook
on its FQ3 conference call last week. Beyond the nervousness
surrounding the March quarter (see our Jan-22 note), there are 3 factors
that would account for the weakness, none of which changes our opinion
of Fore's market opportunity, its earnings power or the competitive
landscape. As best we can tell the factors leading to the share price
weakness include:
-- Insider sales have been relatively frequent in the last few
weeks. We believe nearly all of it is related to two acquisitions
(Scalable and Cadia) Fore completed last year. The lock-up for these
shares has expired and there are numerous odd-lot and small sized sales
(sub-10,000) that haven taken place. We do not believe these are
indicative of near term business prospects.
-- At the ComNet tradeshow this week, Fore's main competitive
rival, Cisco, announced enhancements to its LS 1010 ATM switch family
which provide better quality of service than previously available. Fore
has faced a continuing threat from Cisco for some time and we view this
announcement as part of the normal ebb and flow of competition.
-- There have been trade reports that Fore might be eyeing
additional acquisitions, specifically in the ATM access space. This
could fuel fears of near term dilution, but the ATM access market is
poised for significant growth which would be incremental to Fore's
current opportunities.
RISK FACTORS
ATM is not widely adopted (less 2% of installed networks) and faces
many competing technologies. As IP-switching and Gigabit Ethernet
vendors go public over the next year this will raise the visibility of
competing technologies. |
