Jay- Here is the IBD article with House:
"Investor's Business Daily
Monday, April 13, 1998
Bay Networks
Calls Transition
Quarter Killer
By
Investor's Business Daily
It was a rough winter for the networking industry.
In March, Bay Networks Inc. said its earnings wouldn't meet analysts' expectations while 3Com Corp. and Cabletron Systems Inc. announced earnings that failed to meet estimates.
For its fiscal third quarter ended March 28 Bay expects to post revenue that's 10% less than the second quarter's $645 million It's slated to release results on Thursday.
But Bay should beat the $513 million in revenue reported in the year-ago quarter, says Chief Executive David House. The 22-year Intel veteran took Bay's helm in the fall of '96.
House says demand is weak because the industry's products are in transition. The changes most notably affect switches, which speed up networks, and routers, which direct network traffic. One change: There's a new product called a Layer 3 routing switch, which combines the power of routers with the speed of switches.
House recently spoke with IBD about the changes in the industry.
IBD: How is the networking market changing?
HOUSE: The market goes through technology transitions from time to time and..when that happens it tends to lengthen the decision--making process (for customers). If you look at what's going on this quarter, it's pretty enor-mous. The (new) V.90 standard in 56K modems affects remote-access servers. The Gigabit (Ethernet networking) standard has been up in the air.
The big enterprise networks are ATM (asynchronous transfer mode) in the backbone, but the press is talking about Gigabit all over the place. Now people are asking, "When I put in this (network), should I put in Gigabit or ATM?" It's making that decision-making process longer.
Then the price of 10/100 switches has gone from $500 a port two years ago to $250 last year to $150 in January. Now people are asking, "Should I buy . more low-cost switches?"
Then with routers, people are asking, "Should I buy routers or this new routing switch?" That puts (router sales) in limbo. Just an average delay of two weeks is going to be a disaster in a quarter. All of this really came to a head in this (last) quarter.
IBD: In routing switches, are sales of your new Accelar line going well or, as some analysts say, are customers waiting for similar products from 3Com and Cisco Systems Inc.?
HOUSE: No, I think they're going great. I'm loving the sales. We're penetrating a lot of Cisco backbones with this product. This is one area where I'm extremely happy.
We started shipping this product in Decem-ber and we were pretty much production constrained through the first couple of months. By the end of February, we had put out a large number of evaluation units. Now it's a question of converting those evaluation units into hard purchase orders. I have big expectations for that product next quarter. (The average selling price is $25,000 to $35,000.)
IBD: How many have shipped?
HOUSE: I don't think we'll announce those details. But if we did, I don't think we'd disappoint anybody.
IBD: So you don't see the market waiting for Cisco and 3Com 's Layer 3products?
HOUSE: I think there's some delay in terms of decision making as people wait to see what Cisco and 3Com have or what they will have. But this product (Accelar) is being so well accepted and so successful in testing and evaluation that I'm happy with the revenue numbers. Now, could they be greater ? Yeah, if there wasn't any competition, I guess they would be.
IBD: Are you satisfied with the direction your company is going?
HOUSE: I'm not pleased with having to make this kind of announcement (about the quarter not meeting expectations). But I am pleased with the fact that we had three phenomenal quarters in a row (before the latest quarter).
We've grown faster than the industry in the last three quarters. I'm not going to be discouraged by one bump in the road. I know from my many years at Intel that these things happen to even the most successful companies. I'm 'confident that we're in a good position to come back from this.
IBD: When do you think the confusion about the new technology will shake out?
HOUSE: If it just doesn't get any worse, I'll he happy. When the confusion starts to clear up, then lead time in product cycles shorten. I think some of this stuff is shaking out. The V.90 (modem standard) is there. I think the Gigabit spec is basically there, and all the hardware stuff is basically finalized. Any changes from this point on we can handle in software. We're shipping
Gigabit at this point in time, and our big competitors are not.
I expect more stability in the market-place in the next quarter. I'm going to pick up in April all those orders that slipped out in March. I've just got to make sure that more of them don't slip out of (the quarter ending in) June (like they) slipped out of March."
Nothing new here, except he is saying Accelar sales are good. But then there is a waffle re conversion from test to rev. units. I know he doesn't want to release proprietary sales figures for a specific product, but the company did project "thousands" of units vs. "hundreds" of units in the conf. call last quarter. In fact, the DLJ guy did his downgrade on the basis of Bay not hitting that range. I expect House to be pressed for more detail on this point Thursday night.
It was nice to have a day off from the madness today, particularly after the bounce off the lows Thursday(can you believe we are happy to be back above $24!!). Keep something in mind: The first trading day after Bay announces(Friday) is also an options expiration date. Could have some outside influence; don't ask me in what direction.
Happy Easter/Passover to all.
Paul |
