As you all know, I am long Bay and do not own cisco. The market has told me that is a mistake many times; I always fail to listen. The point to listen to is that a "perceived" monopoly can be as strong as a real one. Cisco's strength is in its marketing and ability to position itself as the only "end to end" solution. If customers believe the story, then it is true. The lack of proprietary technology becomes irrelevant if no one wants to buy the alternative technology(eg. Accelar GB switch). While Mr. House can complain about cisco's "FUD"(fear, uncertainty, denial) campaign, by his own admission it has been working to Bay's detriment. The key issue on the floor is if Bay can overcome this at all, not just if it can do it this quarter.
No one wants Bay to succeed more than me(ok, maybe House does), but the tiny part of my brain that is still rational tells me there is nothing magic about the month of April; if Bay's sales have been soft across all segments/geographies for months, why should they turn on a dime now? If customers have been slow to try/buy Accelar switches up till now, why should we expect an acceleration(pardon the pun) just because Bay has entered an arbitrarily designated time period called the 4th quarter? The concerns raised by Soundview last week are legitimate ones, and frankly, history is on their side. Historically, Bay never had just one bad quarter. I hope this is the year they break the trend, but remember that was the hope this quarter re sequential growth and now we are looking at a 10% decline.
IMO, the cautious(if not prudent) investor should take their Bay money off the table tomorrow and wait to see the conf call on 4/16(after the close) before leaping back in. Yes, you may lose a 1/2 point going up, but there is a better chance you will miss 2-3 points going down if SV is right. Remember, the 12 month low is under $16, when sales were $520MM and earnings were $.10-.12/share. Look at the current earnings and sales consensus for this quarter and the concerns if Accelar's rampup in sales stays slow. It isn't like it hasn't happened before.
I wish all of us good luck, but recognize we are fighting the tape.
Paul |
