Gary, that was an excellent post with great points, and I will be forwarding it to the ASND board since it concerns that company as well, if it isn't there already.
I'm attaching an article that someone posted on the ASND thread that you've probably already read, but it is very much within the boundaries of what we are discussing, so others will likely find it of interest.
Like the reporter who authored the article I am including below, I definately agree that ASND tripped over itself last year in many ways -- "growing pains", as the company describes it. From a value standpoint ASND looks great...even though the company faces formiddable competition from CSCO, COMS, and NN in ATM, this niche is reportedly exploding in growth, which should allow ASND to thrive quite well. Since RA has become so crowded, the company must focus away from this space as its former bread'n'butter (RA sales to ISPs recently accounting for most of ASND's biz), and towards ATM sales to carriers. CSCC is going to carry the company from here on out, and it is only a matter of a few Q's before CSCC's FR/ATM revenue exceeds ASND's RA revenue. Focus towards CSCC as the company's new core apparently seems to be the strategy now.
I first became involved in ASND through CSCC. Remember early 1997 when the networkers began to crash like dominos? First SHVA went, then CSCC...and that's when I began buying shares in the high to low 20s. Soon ASND announced intention to aquire CSCC which promptly knocked the shares down further, so I decided that I would keep the shares of the new combined company. If it wasn't for the aquisition of CSCC, I really have to wonder where ASND would be today...probably looking like SHVA, is my best guess. CSCC is the part of ASND that I really like -- I knew it was only a matter of time before ATM exploded.
As long as ATM picks up momentum and there is plenty of market growth available for the few major players, I have to agree with Jubak's recent article on ASND: the Street will begin to recognize that ASND has a strong position to capitalize on the 50+% growth of ATM, and as the CSCC side surpasses the ASND side in revenues, this will accelerate the growth rate of the whole company...the Street will then award a p/e multiple to match this growth, placing ASND's fair value somewhere in the 50's within the next 3 Q's or so. Jubak's best estimate is 55 in 12 months, with the 40s by Q3. He admits he is using the conservative analyst estimates taking into account little to no Q/Q sequential growth, which is not going to happen.
Only based on value/growth, do I like ASND's prospects -- therefore a 12-month outlook. Long-term or 1+ years out, I wouldn't be interested in the company unless it were [to be] aquired. Too many things can go wrong in this fast-paced industry to bet on the anyone other than #1 or #2 for the long-term.
I like the numbers you ran on CSCO and am considering that when I sell my ASND around 50, I may likely move some of the capital into CSCO just to keep an investment in the networking sector. I'd have to see a little retracement, though. 65 seems a little pricey, and I hate to see profit-takers come in at my expense (but then I was going to load up on DELL at 65 and thought better of it because it was a "rip off").
Style Pts.
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Bull Run: Ascend's Recent Run May Have Some Strength Behind It
By Kevin Petrie
Staff Reporter
2/17/98 10:48 AM ET
Holding a grudge against Ascend (ASND:Nasdaq) for its collapse last year is becoming a costly miscalculation.
Since Dec. 29 Ascend's shares have soared about 50% to about 35 1/16,
outpacing the 12% average gains by networkers, according to the baseline data service.
Ascend, which struggled with bugs in its products in 1997, is luring back investors who are betting that it can make good money while dwelling in giant Cisco's (CSCO:Nasdaq) shadow. A big reason is its acquisition last June of Cascade, whose high-capacity data products are winning business with phone carriers. [STYLE: CSCC is the ONLY reason ASND still has a heartbeat!]
"We got egg on our face" with Ascend last year, says Doug MacKay, assistant portfolio manager at shareholder Oak Associates, which originally owned Cascade. He's a bull now. Oak was already the largest shareholder on Sept. 30,with about 6.1 million shares, according to Technimetrics. His firm has purchased heavily since then, largely because of Cascade, reducing its average cost per share. MacKay says Oak is roughly breaking even on its Ascend investment right now.
Oak also has a big stake in Cisco, whose $63.7 billion market capitalization dwarfs Ascend's $6.4 billion market cap. But the firm believes Ascend still can thrive with its "asynchronous transfer mode," or ATM, technology -- simply put, high-capacity data systems that ease bottlenecks on phone networks. MacKay points out that phone carriers typically prefer to buy from two vendors. [Style: As long as ASND can be one of the two vendors, it will prosper]
"We believe that Ascend has learned a valuable lesson in quality assurance from the acquired Cascade," says analyst William Rabin at J.P. Morgan in a bullish Feb. 5 research note. Rabin says Ascend is shifting its focus to selling ATM and other gear to phone carriers. Previously the company made of its revenue selling "remote access" gear to Internet service providers. His firm has performed no
underwriting for Ascend or Cascade. [STYLE: they've also learned a hell of a lesson in not disappointing the Street, and pissing off the analyst community, or talking-up their expectations. Ever since the greatly respected and experienced CFO Ashby came on board in Q3, he has made numerous changes to ensure the company meets the numbers]
In fact, the Cascade chunk of business generates 42% of total revenue now, and is expected to surpass Ascend's remote access business for ISPs shortly. Two Cascade products, the CBX 500 and GX 550 switches, enable phone carriers to shovel large volumes of digital data across the core of their networks with ATM. Industry experts say the products break new technological ground. [STYLE: the new flagship ATM gear CSCC has begun shipping has no comparable equals, and is reportedly a huge hit with the carriers thereby giving the company a jump on the competition]
To be sure, Ascend also has bottom-fishers to thank for some of the bounce. "At least in our shop, it's been mostly valuation players" purchasing the stock,says one trader. "I have not seen any big institutions coming in and buying a million shares." [STYLE: Actually there was a 1 mil. share block bought at the ask within the past 10 days that Gary Korn posted on the ASND thread from his Level II quotes. It was likely The Capital Group, since they just announced last week that they aquired a 6.8% stake in ASND, increasing their holding by 1000% from only a few months prior -- how's that for confidence?]
Others see Ascend as a trading stock -- not a keeper. "Should I sell Cisco and buy Ascend?" says Chris Bonavico, assistant vice president at TransAmerica Premier Mutual Funds, a Cisco shareholder. "That might be a good short-term play, but not a good long-term play."
Then there's the simple fact that some investors were burned too badly to buy Ascend's stock again. Ascend's main line of business faltered in 1997 when buggy software prompted ISPs to slow their purchases of the Ascend "remote access" products they use to link customers to the Internet. Profits crumpled and disenchanted investors forced the stock down 70% from January to November.
But Ascend is cheaper than Cisco on a valuation basis. After peaking at a trailing price-to-earnings ratio of 80 last year, shares now trade a bit over 30 times trailing earnings (excluding big merger charges). Cisco's P/E ratio is 51.
Mark Yu, research director at Norman L. Yu & Co. in Newport Beach, Calif., says his private investment firm started buying Ascend shares again last month after pulling out last year. While the firm also owns Cisco, Yu says that Ascend looks like a better valuation play right now.
More importantly, Ascend is racking up impressive wins with its advanced technology acquired from Cascade. Williams Communications (WMB:NYSE) unveiled in January a $150 million deal to purchase ascend ATM and frame relay equipment. AT&T (T:NYSE), which intends to pour $7 billion into its network this year, is rumored to be purchasing Ascend's ATM units instead of Cisco's. An AT&T spokesman declined comment, and says no announcement is imminent. Ascend could not be reached for comment. [STYLE: This AT&T win is going to be huge considering the contracts that will probably follow as AT&T beefs up its over-burdened backbone]
And while Newbridge (NN:NYSE) sells a strong ATM product, the entire market is expected to grow robustly in coming years.
Cisco disputes the contention that its products take a back seat. Marketing director Morgan Littlewood at Cisco says that it has been shipping a stronger BPX switch for some time, and that its dominance in other product lines doesn't hurt either. "We can also offer a full array of technologies, including routers."
But Ascend might not need a full bag of tricks to prosper. The irony of its name might fade from memory.
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