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I took the liberty of emailing the following to Mr. Paul Johnson of
ROBERTSON, STEPHENS & CO.:
Dear Mr. Johnson:
Please fine below two reports issued by you. The first I believe on
September 15, 1997 and the second one week later, on September 22, 1997.
You
are a chartered financial analyst according to the acronym you supply by
your name of CFA. I would suspect that a CFA would make comments and
recommendations on facts rather than rumor.
You stated that the competition in the remote access concentrator market
was
intensifying due to both the new products by 3Com and Cisco. It appears
from what I read below you made this assumption based on the following
rumors:
"The industry trade publications have reported on
the pending introduction of the AS5300 for several months. Although
Cisco
(CSCO
$75-1/4) was careful not to release information on the product until its
official introduction, the articles generally portrayed the AS5300 as a
product
aimed directly at Ascend and its high density MAX TNT and donned it the
"Ascend
Killer."
You made it clear you had no factual information and stated you
relied on trade publications due to the lack of information forthcoming
from
Cisco. You only made it clear you had no real information until your
September, 25, 1997 change in opinion regarding the AS5300. One could
only
assume you had information about the AS5300 by your indication of
increased
competition. The truth is you had no real information regarding the
AS5300
when you wrote and published your report on September, 15, 1997. It is
my
opinion that anyone can make erroneous analysts on rumors. It is also my
opinion that a CFA would be lacking credibility if he or she was
publishing
opinions based entirely on rumors.
I am placing my email to you on Silicon Investor in three locations. The
Ascend thread, the 3Com thread and the Cisco thread. I am sure the
thousands
of investors that do read your reports would like an explanation as to
why
you would publish a report based solely on a rumors. I will happily post
your email reply on all three threads once you have had time to write
such.
I thank you for your time in this matter and I am sure thousands of
others
do
also.
Very truly yours,
Glenn D. Rudolph
grudolph@highwaygds.net
ASND: We are lowering our estimates and our rating on Ascend
Communications.
12:11pm EDT 15-Sep-97 Robertson Stephens & Co. (Paul Johnson, CFA (212)
407-04
Robertson Stephens & Co. Robertson Stephens & Co. Robertson Stephens &
Co.
Ascend Communications, Inc. ASND $35.25 9/15/97
Industry: Networking
Paul Johnson, CFA 212 407 0415
Change:Yes/No Was Is Ara Mizrakjian 212 407 0406
...Rating: Yes Buy LTA
...EPS 1996:Actual $0.99 FY DEC 1996A 1997E 1998E
...EPS 1997E: New $1.40 $1.17 EPS: 1Q $0.15 $0.31 $0.30
...EPS 1998E: New $1.92 $1.29 2Q $0.23 $0.31 $0.32
52-Week Range: $80-35 3Q $0.29 $0.27 E $0.33
Shares Outstanding(MM) 203.0 4Q $0.32 $0.29 $0.34
Market Cap ($MM) $7,156 Year $0.99 $1.17 $1.29
Avg Daily Trading Vol (000) 9,562 P/E 35.6x 30.2x 27.4x
6/96 Bk Value/Sh $4.10
6/96 Tot Debt/Tot Cap 0%
LTM ROIC: 95% Revs($M: 1996A 1997E 1998E
Price/Book Value: 8.6x 1Q $148.1 $292.7 $334.0
EBITD/Sh: NM 2Q $205.3 $311.7 $349.0
Div/Yld: $0.00 NM 3Q $248.8 $300.0 E $365.0
3-Yr Sec Growth Rate: 40% 4Q $287.8 $322.0 $380.0
Year $890.0 $1,226.4 $1,428.0
MktCap/Rev 584% 501%
We are lowering our estimates and our rating on Ascend Communications.
We
are
lowering our estimates to reflect weak demand during the September
quarter;
we
are lowering our rating because of limited visibility.
Key Points:
* We are lowering our estimates to reflect the continued weak demand in
orders
so far during the September quarter. As the following table shows, we
are
lowering our estimates for fiscal 1997 and fiscal 1998 to reflect the
continued
weakness in demand so far experienced by the company during the
September
quarter. In our view, much of this shortfall can be attributed to
weakness
in
the international markets, particularly in Europe, but the demand in the
U.S. is
also running below plan. Although Ascend's management remains confident
that
the order outlook remains robust enough to meet plan for the quarter,
with
shipments once-again skewed to the end of the quarter. Nevertheless,
even
under
these circumstances, we believe the quality of earnings in the quarter
will
be
low and the outlook for the December quarter would also be called into
question.
Although our cuts look drastic, this is not the first quarter that the
company
has struggled to meet expectations and the outlook remains limited.
* 1996A 1997E 1998E
New
Revenues(mm) $890.0 $1,226.4 $1,428.0
EPS (fully taxed) $0.99 $1.17 $1.29
Old
Revenues(mm) $1,334.4 $1,840.0
EPS $1.40 $1.92
* We are lowering our rating on the stock to a Long-term Attractive to
reflect
the estimate cuts and changes in the competitive balance in the
industry.
In
light of our estimate cuts, we feel compelled to review our rating on
the
stock.
This is the fourth consecutive quarter that the company has struggled to
meet
expectations. Each quarter had extenuating circumstances, but a pattern
has
developed. We believe that the weakness in demand is much more than just
technology transition issues and believe that the competitive
environment
has
become more severe with both 3Com (U.S. Robotics (COMS $ 50-1/8)) and
Cisco
(CSCO $72-1/4) becoming much more aggressive in the market. In light of
these
changes in the competitive balance in the industry, we are convinced
that
visibility for Ascend will remain limited for several months, if not
longer.
As
a consequence, we do not feel that the stock warrants a Buy
recommendation.
In
our view, it is becoming increasingly clear that competitive pressures
are
building in the market for remote access concentrators and the end
result
has
been significantly lower pricing from all of the vendors. We believe the
move
to 56Kbps technology has only added to the uncertainty in demand and
changes
in
competitive issues. The net result, in our opinion, is that prices will
continue to be under pressure for the foreseeable future, which will
severely
limit earnings growth and should put additional pressure on return on
capital
measures.
* ACTION NOW: Ascend is rated Long-Term Attractive.
COMPANY DESCRIPTION: We believe Ascend is emerging as one of the
important
networking companies trying to modernize wide-area networking access
with
advanced digital products in the same way that companies such as Cisco
and
Cabletron have simplified the structure and enhanced the capability of
local
area networks. Ascend develops, manufactures, markets, sells and
supports a
broad family of high-speed digital wide-area and remote access
communications
devices. These devices are used to build private video conferencing
networks,
remote access networks, Internet access and integrated access networks
supporting voice, video and data. Ascend's access devices provide
corporations
with the flexibility to establish wide-area connections by way of
high-speed
switched digital connections.
INVESTMENT RISKS: Among the risks are continued market acceptance of the
company's new products, such as the MAX TNT, GRF 400, and Pipeline;
cannibalization of older products; and continued growing demand for
wide-area
networking and communication devices.
Robertson, Stephens & Company maintains a market in the shares of 3Com,
Ascend
Communications and Cisco Systems and has been a managing or comanaging
underwriter within the past three years for Ascend.
FOR ADDITIONAL INFORMATION, CALL YOUR ROBERTSON, STEPHENS & CO.
REPRESENTATIVE AT (415) 781-9700
Cisco Introduces the AS5300 - Not Nearly as Competitive as Feared.
01:35pm EDT 22-Sep-97 Robertson Stephens & Co. (Paul Johnson, CFA (212)
407-04
Robertson Stephens & Co. Robertson Stephens & Co. Robertson Stephens &
Co.
Ascend Communications, Inc. ASND $37.44 9/22/97
Industry: Networking
Paul Johnson, CFA 212 407 0415
Change:Yes/No Was Is Ara Mizrakjian 212 407 0406
...Rating: No LTA
...EPS 1996:Actual $0.99 FY DEC 1996A 1997E 1998E
...EPS 1997E: No $1.17 EPS: 1Q $0.15 $0.31 $0.30
...EPS 1998E: No $1.29 2Q $0.23 $0.31 $0.32
52-Week Range: $80-35 3Q $0.29 $0.27E $0.33
Shares Outstanding(MM) 203.0 4Q $0.32 $0.29 $0.34
Market Cap ($MM) $7,600 Year $0.99 $1.17 $1.29
Avg Daily Trading Vol (000) 9,562 P/E 37.8x 32.1x 29.1x
6/96 Bk Value/Sh $4.10
6/96 Tot Debt/Tot Cap 0%
LTM ROIC: 95%Revs($M): 1996A 1997E 1998E
Price/Book Value: 9.1x 1Q $148.1 $292.7 $334.0
EBITD/Sh: NM 2Q $205.3 $311.7 $349.0
Div/Yld: $0.00 NM 3Q $248.8 $300.0E $365.0
3-Yr Sec Growth Rate: 40% 4Q $287.8 $322.0 $380.0
Year $890.0 $1,226.4 $1,428.0
MktCap/Rev 620% 532%
Cisco Introduces the AS5300 - Not Nearly as Competitive as Feared.
Key Points:
* Cisco Systems introduced its next generation remote access
concentrator,
the
AS5300. Despite being billed as the "Ascend Killer," in our opinion, the
product features appear to be unimpressive when compared with Ascend's
MAX
TNT.
The AS5300 also appears to be unimpressive when compared with the new,
higher
density technology expected to be introduced by U.S. Robotics (COMS
$50-1/2)
within the next few months. The industry trade publications have
reported
on
the pending introduction of the AS5300 for several months. Although
Cisco
(CSCO
$75-1/4) was careful not to release information on the product until its
official introduction, the articles generally portrayed the AS5300 as a
product
aimed directly at Ascend and its high density MAX TNT and donned it the
"Ascend
Killer." As the accompanying table shows, the AS5300 offers density
higher
than
Cisco's own AS5200, but its density is no greater than the two year old
MAX
4000 and pales in comparison with the Ascend MAX TNT. With the AS5300,
we
believe Cisco will be more competitive in lower density applications
than it
was
with the AS5200 but will unlikely be any more competitive in high
density
markets such as the large ISPs.
* Ascend's MAX TNT can still rule the roast. Trade publications have
reported
widely for several months that the MAX TNT has failed to deliver on many
of
its
technology promises, such as high density loading, support for
channelized
DS-3,
and a clean implementation of the next generation 56K. Although the
company
has denied vehemently that these problem exists, contact with customers
and
competitors are convincing. More importantly, many of the customers have
refused to accept the device until many of these technical problems are
resolved. Hence the shortfall in the quarter. Despite these
short-comings,
we
believe the MAX TNT is an impressive system and none of the competitors
offer
products with its scale, capability or potential. As a consequence, we
believe
Ascend can still return to much of its past glory if it can solve these
technical problems in a timely matter. On one hand this is not a bad
situation
as, in our opinion, Ascend just needs to focus its engineers on solving
the
problems. On the other hand, the clock is ticking and the company will
run
out
of time as the competitors will continue to move the technology forward.
Product Comparison
Vendor/Product Density A Density B Density C
Physical Size 56k Solution
(concurrent Sessions(T1/E1 PRI Interface(modems per
card)
Ascend
MAX 4004 96 4
12
3x17x12 in. K56Flex
MAX TNT 672(3 shelf system) 150 48/card,
288/shelf
14x17.4x11.5 in. K56Flex
BAY Networks
MSX 5000 w/ 5399 576 24(2/card)
48/card
CISCO
AS5260 48,60 2
2
rack units/3.5x17x15 in. none
AS5300 96,120 4
K56Flex
3COM (USR)
Total Control 48(12x4) 2 4/card,12
cards
8.75x19.9x18.5 in. X2
Total Control Hi 336(24x14) 14 24/card,14
cards
8.75x17.3x18.6 in. X2
ACTION NOW: Ascend is rated Long-Term Attractive.
COMPANY DESCRIPTION: We believe Ascend is emerging as one of the
important
networking companies trying to modernize wide-area networking access
with
advanced digital products in the same way that companies such as Cisco
and
Cabletron have simplified the structure and enhanced the capability of
local
area networks. Ascend develops, manufactures, markets, sells and
supports a
broad family of high-speed digital wide-area and remote access
communications
devices. These devices are used to build private video conferencing
networks,
remote access networks, Internet access and integrated access networks
supporting voice, video and data. Ascend's access devices provide
corporations
with the flexibility to establish wide-area connections by way of
high-speed
switched digital connections.
INVESTMENT RISKS: Among the risks are continued market acceptance of the
company's new products, such as the MAX TNT, GRF 400, and Pipeline;
cannibalization of older products; and continued growing demand for
wide-area
networking and communication devices.
Robertson, Stephens & Company maintains a market in the shares of 3Com,
Ascend
Communications and Cisco Systems and has been a managing or comanaging
underwriter within the past three years for Ascend.
FOR ADDITIONAL INFORMATION, CALL YOUR ROBERTSON, STEPHENS & CO.
REPRESENTATIVE AT (415) 781-9700
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