vepoc...I took you up on it. Let's see what it says. I've cut and pasted it here now I'll go back and read it.
Top Stories: Bay Networks' CEO Warns
of Short-Term Weakness
By Kevin Petrie
Staff Reporter
2/5/98 3:51 PM ET
Bay Networks' (BAY:NYSE) recovery might take a short
hiatus.
"I don't want the Street to get too optimistic about this
quarter," CEO Dave House said Thursday morning in an
interview in his suite at the Inter-Continental Hotel in
midtown Manhattan. However, he remains "very optimistic"
about the second half of the fiscal year ending in June 1998.
After the market closes Thursday, House and a cadre of top
executives will huddle with sell-side and buy-side analysts at
the same hotel, one of his few such meetings since taking
over at Bay in the fall of 1996. He says that he intends to
forge stronger ties with the investment community, which
has complained about a lack of access. "I need to have a
better relationship with the Street."
But House has had plenty to keep him busy. The Intel
(INTC:Nasdaq) veteran and former lieutenant of Andy Grove
has executed a rescue operation. For instance, he finally
glued together Bays' Wellfleet and SynOptics units, which
had merged clumsily in October 1994.
During his tenure, Bay topped the First Call consensus
estimates every quarter in calendar 1997, and its stock
soared 165% to 41 on Oct. 9 from 15 1/2 on Mar. 24. The
Asia tech flu then roiled Bay's stock, although it bounced up
in mid-December. After early gains in the day, at 2:30 p.m.
Thursday Bay was down 1/2 at 29 5/8.
Now, investors who were spooked recently at his veiled
warning of "seasonal" slowness this quarter want to know
what's going on.
While the long-term story looks sound, the Street has
already tempered its short-term outlook for Bay. The First
Call consensus for the current quarter has been reduced to
28 cents per fully diluted share from 30 cents per diluted
share two weeks ago, according to the Baseline data
tracker. Analysts still expect a strong June fiscal year --
estimates are $1.09 per diluted share, compared with 59
cents per basic share in fiscal 1997 (excluding significant
merger, restructuring and other charges; diluted earnings
were not available for fiscal 1997, due to a change in
accounting practices since that time).
Sipping coffee, House tromped on his deadline for the next
meeting as he explained Bay's technology advantages and
the outlook for the quarter. Among his major points:
He defined the "seasonal" problem. In the fiscal third
quarter ending March 30, many corporations are busy
installing equipment they bought in the fourth quarter with
year-end budget allocations. So they are slow to purchase
new computer-networking products, House explains.
House says Bay's fourth quarter ending June 30 will be
much stronger because corporations with the same fiscal
year will hustle to spend their annual networking budgets
before taking a summer vacation.
A product transition likely will add to the fluctuation in
revenue. This quarter Bay ships new products for
corporations in two categories, the BayStack 350 and
Accelar 1000 lines. The 350 devices are "switches" that ship
digits across local-area networks, while Accelar technology
performs more complex navigation tasks at speeds and
prices that challenge Cisco's (CSCO:Nasdaq) dominance
with its routers. It's a plan common to the industry --
cannibalize old models with the new ones.
House says the strategy is working well. "We have
obsoleted the 350T" -- an old cut-rate 350 model that fueled
much of Bay's revenue growth in prior quarters. The question
is how quickly Bay can make money with new technologies.
"The new 350 series, I'm pretty confident in," House says.
However, "you could always have problems with product
transitions."
Bay has regained the loyalty of employees. But the
company is only "half there" in regaining the loyalty of
customers, House says. In particular, Bay needs to develop
relationships with "C-level" folks at corporations -- CEOs,
chief technology officers, and so forth. "That's been Cisco's
strength."
House intends to change that. Earlier in the week, he
attended the World Economic Forum and met with the
chief officers of Bay clients that include Chase Manhattan
(CMB:NYSE) and CitiCorp (CCI:NYSE).
Cisco, the behemoth to beat in networking, will feel real
margin pressure this year as the sales growth of its
profitable routers slacken further and customers turn to
hybrid "router-switches" instead. Bay's market cap is $6.4
billion, putting it well behind industry leader Cisco's $65
billion. |
