info repeat.
(UPDATE) Concerns Linger Over Possible Earnings Shortfall At Ascend
Dow Jones Online News, Tuesday, September 16, 1997 at 17:21
NEW YORK -(Dow Jones)- Concerns that Ascend Communications Inc. will
miss third-quarter projections have created an atmosphere in which any
bit of information or whisper of a rumor - true or false - crushes the
stock.
The stock fell 8% Monday on rumors Ascend (ASND) was about to
prerelease disappointing third-quarter numbers. At the close Tuesday,
the company's shares were off $1.188 at $33.688. So far, however, the
rumors have turned out to be false - at least so far. And Dillon Read &
Co. analyst Robert MacLellan said such predictions have been swirling
for some time.
Also, the shares of the maker of networking equipment fell 6%
Thursday after experts interpreted a price promotion on the company's
MAX product line as a sign that Ascend needs to boost sales to meet
earnings projections. But according to Hambrecht & Quist Inc. analyst
Joseph Noel, the "MAX Value" program was a planned promotion designed to
get rid of excess inventory.
As Ascend continues to keep quiet on what it projects for the third
quarter - in part because its results largely depend on how it does in
the final weeks of the period - Wall Street has been left guessing as to
what to expect from the Alameda, Calif., company.
And the lack of solid direction has created a vacuum in which any bit
of news or rumor has sent investors scrambling to exit the stock.
A slew of analysts have lowered their ratings and earnings estimates
on Ascend in recent weeks on concerns the company is seeing weak sales
in Europe and is coping with some difficulties getting the software on
its 56K modem cards to interface properly with the operating system
software on its remote access switches. MacLellan said those
difficulties caused a two-week delay in product shipments in the quarter
and were compounded by unexpectedly high demand for 56K modems.
MacLellan said third-quarter sales suffered because Ascend had to
pull its sales force off the floor for a week to educate them about the
products the company acquired with its purchase of Cascade
Communications Corp.
Many analysts have been lowering their estimates for the quarter to
about 29 cents to 30 cents a share from 36 cents in recent weeks.
Noting that some analysts are still projecting Ascend will report 34
cents a share for the quarter, MacLellan said he believes the company
will pre-announce its results only if the views don't come down fast
enough to "around 30 cents plus or minus a few pennies" or if it looks
as if Ascend will fall short of that target.
MacLellan cut his third-quarter numbers on the company to 34 cents a
share from 36 cents about a month ago and then to 29 cents last week.
Noel cut his to 35 cents a share from 36 cents a week ago and to 33
cents Monday.
The company earned 29 cents a share in the third quarter of 1996.
Ascend is scheduled to release its numbers in mid-October.
According to Noel of Hambrecht & Quist, the problems with the 56K
modem card have been much more pronounced in Europe than the U.S.
European shipments started later, he explained, and Ascend faces a
different set of standards and has more new customers there.
As a result, Noel said Ascend claims that while it has orders in
Europe, it hasn't been able to deliver many products there. The analyst
expects the company to resolve product problems for some - but not all -
of its customers and ship to them before the end of the quarter.
Other analysts, including Robertson Stephens analyst Paul Johnson,
also have expressed concerns that Ascend has come under pricing pressure
as a result of competition from 3Com Corp. (COMS) and Cisco Systems Inc.
(CSCO).
Although some analysts upgraded Ascend after it indicated in mid-July
its acquisition of Cascade wouldn't be dilutive, the company sent Wall
Street a warning signal on Aug. 8 in the form of an 8K filing with the
Securities and Exchange Commission.
In the filing, Ascend said it had earned two cents a share on revenue
of $63 million in July. Since third-quarter estimates at that time for
earnings of about 36 cents a share on revenue of $330 million, it then
became increasingly clear that the quarter would be back-end loaded,
MacLellan said.
And since the company's August results weren't much better than
July's, analysts have become even more certain that Ascend must make up
the bulk of its results this month to meet earnings estimates.
"It's clear that the quarter will be a stretch," MacLellan said.
He said that since it usually takes Ascend about 30 days to deliver a
large order, every day that an order is pushed back increases the
likelihood that it will go into the fourth-quarter results.
Despite the widespread concerns about Ascend's third-quarter results,
Noel is telling investors to start buying the stock now because he
believes the company's problems are short term.
Predicting Ascend will recover next year, Noel pointed out that the
company is in a "growth business." The analyst explained that since
Ascend's products have a lot of capacity, they appeal to the large
Internet access providers, which he expects to dominate the industry
going forward.
"There's real value here," Noel said. "Who cares about the September
quarter?" Noel projects Ascend will $1.37 a share in 1997 and $1.80 in
1998. And MacLellan expects the company will earn $1.24 a share this
year and $1.79 next year. Ascend earned $1 a share in 1996.
Company officials didn't return phone calls.
I got all this from public info and ascend had dropped enough hints to analyst..but they still should have released this last week
Some of my thoguhts again.
1. Rumor mill has tanked ascend and most network's. COMS hitting the earnings may
be good sign. Ascend doesn't comment in this quite zone. This makes it worst.
2. The MAX price promotion that caught the analyst by surprise had been planned all
along per HQ
3. These two alone can cause the drop we had but there are plenty more reasons.
4. 3Q in Europe is historically weak..6 weeks of vacations will do that<gg>
5. Information Systems is retooling their networks, remote access, and Internet. It's all
being financed by getting their long distance carrier to drop their rate from 14 cents a
minute to 7 cents a minute and local carriers are having to drop their rates 20-40%
too.
6. I hope Ascend is developing all their systems. They will need it.
7. Gotta stop now, Maria Bartaroma is own.. need to find out the gossip<gg>
8. I'm back now..
9. IBES estimates that we have another great qtr. See a lot more exceeding estimates
than missing it.. technology is hottest
10. Rumor is that Ascend really needs this three weeks to hit the numbers.
11. Some think that 3COM has agreed to stop using x2. They deny this.
12. Ascend sales force had to come in for training on new products (Cascade). Maybe
it hurt sales.
13. Monday is almost end of Qtr..Ascend should know what's up.
14. I think Ascend wanted the downgrades and would have said something if their
consensus wasn't lowered to around .30 +- .03.
15. European stds. Are different and that's slows Ascend up there. If they clear this up
before Sept 30 then it's big sales..wish I knew this
16. coms and cisco are creating pricing pressure, but for now ascend has Internet
advantage in the operations room . They are always my choice on ISDN too.
17. The ascend filing of July sales of $63mm and .03 earnings per share has
contributed to the fall in sales. What is in all those numbers. I read a summary of
this.Need to read the filing on Edgar.
18. They said August is weak too.
19. Customer demand for Internet remains out of site. Our next move is the T1 and we
have a new site close to deployment and all the collaborative processes to customers
via Internet.
20. There is some concern on high end MAX TNT and 56k on delays.
21. Everen seems high on Ascend but the ones that move a stk are Goldman Sachs,
AG Edwards, and Alex Brown. Everen says Europe is weak but USA on target.
Goldman Sachs see .33 3Q and .35 for 4Q for .40
22. The analyst disagree on Ascend. So, if they do disappoint but have good forward
statement count on a shaky open after earnings but it may not tank.
23. Selz sees cascade is great purchase. It will reduce time to market of products they
need to compete. They see 60 as target on asnd next yr.
24. Market still sees USRX with the lead on 56K but IF THAT IS TRUE COMS IS
STILL GIVING AWAY THE LICENSE CHEAP.
25. Ascends inventory turns are poor next to coms and cisco. Leaves them open to
loses and makes me doubt they are into the latest mat's logistics systems ..ELM. I
doubt their systems altogether.
26. Ascend is still trying to digest the purchases. It's rough even for great
company.culture and extra resources, extra people too. Duplicate staffs in admin. And
finance and planning. Feb ..Intercon, April..Whtietree, June Cascade, and cascade
was buying Sahara..merger mania is rough.
27. I wonder what the impact of rule 128 is on Ascend..raise earnings in prior qtrs??
CPA care to comment.
28. Ascend admits to be nervous about the competition. They have a great gross
margin 65%.
29. 34% international sales and Japanese sales leaves them open to currency exchange
problems. Analysts know this and it keeps analyst guessing if they can hedge
appropriately.
30. Wonder what the margins will be merging in cascade??
31. At least the one time merger cost are posted
32. Ascend is moving so fast I wonder about obsolescence in inventory.
33. Ascend cautions that distributor channels may lower margins.. this is only a could
be. I think their systems are so poor that they can make allot of improvements easy
with right CIO.
34. I already can see that they are not handling the systems growth well.. I'm checking
to see if they are implementing ELM next week.
35. Did a software glitch hurt 2Q, there was an est. that it did by $25mm. $22mm is
direct revenue and $3mm in lost sales. If so then they get some easy shipments this
qtr..
36. Hope GRF and MAX TNT help margins
37. Most say that the Cascade is 1997 neutral but helps by .10 to .15 a share in 1998.
38. Valueline says that 250 work force reduction happens in admin. and finance.
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