[After-the-bell bullish networking article in thestreet.com]
thestreet.com
"I believe that
data networking
will continue to
be the
fastest-growing
sector in
technology."
-- John Rutledge
Top Stories: Intel Scare Spooks
Networkers, but Investors Still See
Value
By Kevin Petrie
Staff Reporter
3/5/98 3:21 PM ET
Intel's (INTC:Nasdaq) profit warning late Wednesday
wasn't the warning screech of a canary in a coal mine, at
least for the networkers.
This group still has plenty of oxygen. Its health depends
on the demand for network bandwidth, which is exploding
regardless of the outlook for Intel's silicon chips. Still,
bears are holding the high ground, at least on Thursday.
"Whatever is related to tech, they're going to sell," says
one trader who deals in Bay Networks (BAY:NYSE) and
other networkers. "Someone could announce a 40 bid for
BayNet, and it would still trade down." Off 3/8 at 30 in
early afternoon trading, Bay is a frequent target of
takeover talk. With a market cap of $6.4 billion, the
resurgent company is still much smaller than Cisco
(CSCO:Nasdaq), whose market value is $65.7 billion.
Cisco was off 2 9/16 at 62 11/16. But he trader expects
the sector to bounce after a few ugly sessions.
"There are a lot of people just dumping the stock" --
mostly traders reacting in a knee-jerk fashion -- says
buy-side analyst Steve Salopek at Stein Roe &
Farnham. Stein Roe is buying. While Cisco trades at a
rich 49 times trailing earnings, Salopek likes the growth
potential of its new products.
"I believe that data networking will continue to be the
fastest-growing sector in technology," says John
Rutledge, vice president of research at Loomis Sayles.
His firm holds a big position in Cisco, as well as some
3Com shares. Rutledge declined to state what Loomis is
buying or selling on Thursday.
The links between Cisco and Intel are rather loose. Intel
develops the microprocessor brains of personal
computers, while Cisco furnishes the joints of various
computer networks that attach to or form the Internet. One
business might wax or wane independent of the other.
"The Internet is growing like a weed," says analyst
William Rabin at J.P. Morgan. Corporations are using
more-advanced software on their computer systems, and
trying to catch up with their computers' bandwidth needs.
However, they aren't installing new Pentium-based PCs at
the same rate.
In addition, "all of our data-checks indicate that the
carriers are going to be big purchasers of data-networking
equipment this year," Rabin says. That includes both
phone carriers and Internet service providers, which are
building networks feverishly to keep pace with demand for
data services. Carriers and ISPs generate 35% of Cisco's
revenue.
To be sure, expected revenue growth for networking overall
has ebbed to a range of 25% to 30% a year from 30% to
50%, Rabin says. But many say the stock market has
digested this news, and there's still a fundamental
demand for bandwidth. Rabin rates Cisco, 3Com
(COMS:Nasdaq) and Ascend (ASND:Nasdaq) buys. J.P.
Morgan has performed no underwriting for the networkers
he discussed.
For evidence of the Internet explosion, journey to Chicago,
where ISP MegsINet just agreed to purchase up to $200
million of equipment from the supplier Northern Telecom
(NT:NYSE). In the last 30 days it has bought $2 million of
gear -- $1 million each from Cisco and Ascend.
"We've probably quadrupled" the company's capital
expenditure in the last three months, says MegsINet CEO
Michael Henry. His ISP serves New York, Cleveland and
other eastern cities; customers are increasing by 4% per
week.
See Also
BULL RUN
Uniphase Set
to Gain as
Fiber-Optic
Technology
Advances
3/4/98 2 PM
SILICON VALLEY
Robertson
Stephens
Tech
Conference:
Ciena Tries
to Win Back
Investors
2/26/98 10 AM
TOP STORIES
Ciena's Stock
Gets
Slammed,
but Plenty of
Bulls Remain
2/20/98 0 PM
TOP STORIES
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