Cowen & Co. raised to TRADING BUY based on near term business activity and valuation ASND
Cowen's analyst 3 key points are:
1. ASND Rating Increased To Trading buy, With A $37 Price Target
2. Quarter Tracking To Expectations, On Strong ATM Switch Business.
3. New Product, Customer Announcements Likely In The Near-Term.
Their general overview is that ASND is a dominant player in the Internet access concentrator and it has a strong position in the ATM switch and frame relay markets. The company will be one of the most significant infrastructure suppliers for the explosion in spending on next generation carrier voice and data networks. While the access concentrator and frame relay switch markets appear poised to grow 10 to 20% annually, the ATM switch market is exploding and ASND's CBX500 and GX550 products are achieving significant deployments in carrier backbones.
As has been reported Cowen reports that ASND is tracking To Plan. Core ATM Business Ahead Of Our Expectation. They continue to believe that ASND is likely to meet our $0.25 EPS estimate for Q1 or calendar '98 on the strength of robust growth in core switching and North American dial access. Continued weakness in parts of Asia and in Europe, for dial access in Q1, lead us to believe that it is an on-track quarter, over-all. However, in Q2 of calendar '98, Europe should be a strong contributor to access concentrator revenues.
Recent concerns about NT's Aptis acquisition are probably overblown in the near-term. Northern Telecom recently bought access concentrator start-up Aptis, which has trials under way at BBN, UUNET and two other carriers. While Aptis has a compelling architecture and a strong team, we think it is unlikely that Aptis will displace ASND in major accounts in the near-term, because getting the software to operate smoothly on new access concentrator platforms always takes longer than expected. Over a longer time horizon (6 to 9 months), Aptis may make a dent, with its highly scaleable, fully carrier class architecture. ASND's stock has also been weak recently because the take over premium has been eliminated as NT bought Aptis and Lucent announced the PM4 access concentrator.
New product announcements likely in the near-term. We believe that ASND will announce the MAX 6000, supporting voice in the next week or two, as well as voice support for the TNT, giving a lift to the stock. It is also likely that we will see one or more major new customer wins announced. [as posted here from the trade press]
Version 2.0 Of TNT software appears to be solid. While there were significant concerns about the quality of ASND's software until recently, Version 2.0 of the TNT software appears to be solid. Version 6.0 of the MAX software still has some problems, but this release is less critical because earlier versions of the MAX software are relatively stable and the TNT platform is generating growth for ASND, while the MAX platform is declining.
GX 550 to ship for general availability. [As was reported from comments at conferences, the street is now acknowledging ATM shipping in quantity starting beginning Q2] Higher density TNT modem boards coming in Q2. The GX550 core ATM backbone switch will ship in small quantities towards the end of Q1 and begin to ramp in Q2. They expect the GX550 to do extremely well as carriers continue to build high-speed ATM backbones. Recent large wins at both AT&T and Williams are built around the GX550. They expect AT&T to order 112 additional ATM switches from ASND during calendar 98 for revenues of $50MM+. [again, if you have been on SI awhile, you heard about that one here, too] ASND is also likely to ship higher density boards for the TNT in Q2 based on the CSM-3 technology from Rockwell. They believe this will drive access concentrator street pricing down by about 15-20% by June 1998, but not materially impact gross margins.
One key risk to ASND's performance over the coming quarter will be the timing of price cuts. While pricing is currently stable, we cannot predict the timing of the price cuts, which could impact revenue growth in Q2.
Thus our upgrade is to a Trading buy. [What they don't know is Michael reported that costs of goods is going down to offset the lower price per port at the Monty conference].
They report that with continued improvements in product quality and new software features on the TNT shipping, ASND's business prospects keep getting better. Their large ISP customers continue to make steady purchases of dial ports. With the GX550 core ATM switch, the CBX500 multiservice backbone switch and the TNT, the company is involved in many large deals than ever before, at some of the largest US and international carriers like WCOM, AT&T, Williams and GTE.
They report that the business should continue to accelerate in during the second half of this year, as Europe gears up for continued telecom deregulation, Japan hopefully makes a comeback and service providers in Latin America begin to deploy ATM backbones. [which leaves the door open for a longer term upgrade as ASND performs] |
