Synopsis of comments from Furman Selz (FS):
Not Out of the Woods, But The Current Quarter is So Far on Track.
FS says that at this point they believe ASND is tracking to show modest sequential revenue and EPS growth in 4Q97 (December).
They say that for now they are maintaining their current estimates
for Q4 at $292 million revenue and $0.25 EPS (vs. $0.23 EPS consensus).
They state that they will revisit their estimates again over the next two weeks before the company enters its quiet period. ASND is scheduled to report Q4 results on January 20th.
FS Key points:
They state that North America seems to be generally on plan, while an improvement in Europe is at least somewhat offsetting notable weakness in Japan. They add that core switching continues to be the strongest sequential growth area, especially in ATM switching for carriers' infrastructure networks.
FS says that RAS ports should show some modest sequential unit and
revenue growth, and that carriers (telcos) should be a higher percentage of revenue in the current quarter, as opposed to ASND's traditional ISP customer base.
FS comments that North America Is On Track, Europe Is Getting Better, and Japan Is Weak. They also say that ASND's order flow from North America customers seems to be generally tracking to plan with Worldcom/UUNet remaining key customers for core switching and remote
access, respectively.
Interestingly, FS says that in addition to BellSouth and Bell Atlantic/NYNEX which are already core switching customers, ASND has sold core switching product to another undisclosed RBOC in the current quarter.
Regarding Europe, FS says that the outlook for ASND has improved since last quarter, although certification testing for the TNT is not complete with all European customers.
FS mentions that Deutsche Telecom and Unisource have ordered TNT ports after recently completing extensive audit reviews with ASND on the company's commitment to the demands of the carrier marketplace for both new product development and supporting current generation equipment upgrades.
FS expects that ASND will be able to ship the TNT in volume to all or at least the vast majority of its European customers by 1Q98.
Regarding Japan, FS says it continues to be weak with no near term outlook for a significant uptick, including looking into ASND's 1Q98, which is Japan's fourth fiscal quarter and usually the strongest of the year for that region. However FS adds that a notable exception to the weakness in Japan is ASND's core switching business at NTT which is doing well at this stage with over $30 million in revenue. FS says that ASND released the TNT for shipment to Japan as of last week, and that so far in the quarter the lack of the TNT in Japan does not seem to have been a critical issue as the issues seem to have more to do with the macroeconomic impact.
FS adds that they continue to believe that the acquisition of Cascade earlier this year was a key acquisition for ASND, because the company has core ATM and Frame Relay WAN switching technology now at a time when carrier demand is increasing steadily. It also reduces ASND's former sole dependence on remote access products, which is a clearly a benefit to the company in terms of its current order and revenue run rate.
FS states that the benefits of the Cascade acquisition are visible in that the company's core switching unit is showing the most significant and steady improvement by product line, especially in ATM WAN switching with good balance across its principal geographic regions,
and that Worldcom, NTT and an additional and undisclosed RBOC
customer are key customers for ASND's ATM WAN switching.
Regarding the TNT, FS says that ASND continues to make progress on the software and delivery of key billing and customer management features.
They add that ASND is scheduled to release a major software update for the TNT this month. The TNT highlights an area in which there is need for further and ongoing improvement, e.g., better planning of
system software updates with high quality control - in other words "systemizing the process".
Regarding Product demand forecasting, FS states that this was a key issue for the company in its disappointing 3Q97 performance. ASND now conducts weekly product forecast (as opposed to monthly previously) conference calls with key customer unit sales managers for North America (telco, ISP, VARs and distributors) and international (Japan,
Europe, Pacific Rim and Latin America) operations.
FS' final comment is that the primary fundamental factor which could potentially reduce their opinion on ASND going forward is related to CSCO. CSCO is being aggressive in pricing on a deal-by-deal basis but FS views this as normal activity in such a highly competitive market. Since any erosion in ASND's fundamental position is likely to be to CSCO's gain FS recommends that investors think of owning CSCO as a hedge against a long position in ASND. |
