And now comes Merrill Lynch. Holding a Neutral with a long term Accumulate rating, which is what they downgraded to on August 28, 1997. This is still a nice report. They did up their estimate of the full years 1998 and 1999.
Joe writes the following:
Investment Highlights:
o In the March quarter, revenues increased by 4% to $305 million and EPS were $0.26 versus $0.31, slightly above consensus EPS of $0.25.
o Based on March quarter results, we are fine tuning our estimated 1998 EPS from $1.10-1.30 to $1.15-1.25. We are establishing a 1999 EPS estimate of $1.35-1.45.
o We are maintaining our intermediate term rating of Neutral.
Fundamental Highlights:
o The book-to-bill ratio was greater than 1.0 in both domestic and international markets in the March quarter.
o With the exception of a large order from Japan, business from the Asia/Pacific region was soft. The company does not expect business in the region to pick up until the second half of 1998.
Highlights Of March Quarter Results
Revenues
On a year-over-year basis, revenues increased by 4% to $305.1 million.
Revenues by distribution channel were 36% carriers, 41% Internet service providers, 23% resellers and end users. Revenues by product category were 44% access concentrators, 41% core switching, 10% enterprise, and 5% service and training. On a geographic basis, international markets accounted for 26% of total revenues, compared to 27% in the December 1997 quarter. Sequentially, revenues in Europe were $31 million (10% of sales) versus $41 million (14% of sales) and revenues in Japan were $30 million (10% of sales) versus $15 million (5% of sales).
Operating Expenses
Gross margins were 64.0% versus 65.0% and compared to 64.0% in the preceding quarter. SG&A expenses were 25.4% versus 21.3% and R&D expenses were 13.4% versus 11.8%. Operating margins were 25.2% versus 31.9%, and compared to 23.6% in the preceding quarter.
EPS
EPS were $0.26 [Good for Joe. He was in print at .26 in an industry forecast about a week before the earnings release] versus $0.31, slightly above consensus EPS of $0.25. Based on March quarter results, we are fine tuning our estimated 1998 EPS from $1.10-1.30 to $1.15-1.25. We are establishing a 1999 EPS estimate of $1.35-1.45.
Balance Sheet
As of March 31, 1998, cash and short-term investments were $605 million, an increase of $130 million from the preceding quarter. About half of the increase is attributable to operating cash flow, and the other half from option exercises and deferred tax payments. Accounts receivable were $243 million (72 days sales outstanding) and inventories were $103 million (inventory turn ratio of 4.3). The company's goal are for DSOs in the 70-75 range in 1998 and an inventory turnover ration of 5.5 in 1998.
Business Trends
1) Book to Bill. The book-to-bill ratio was greater than 1.0 in the March quarter for both the U.S. and for international markets.
2) Revenue Growth. The company expects sequential revenue growth to accelerate through the rest of the year.
3) Access Switching increased by 8% sequentially, with strong performance in North America and from MAX TNT at large service providers. The company is starting to see demand for xDSL equipment. V.90 software upgrades are expected to start shipping in mid to late April, followed by general availability in May.
4) Core Systems revenue was up modestly on a sequential basis, but saw strong growth in orders for ATM and Frame Relay equipment. The company shipped the GX550 ATM switch during the quarter, but did not recognize revenue for it during the quarter. The company expects revenues for the GX550 to ramp in the June quarter. We expect revenues from the Core Systems business to increase to 50% of total business by the end of the year.
5) Enterprise Access revenues increased by 8% sequentially, and the company had continued success in the reseller channel.
6) Regional Business. The company's goal is to have international revenues account 30% of total revenues by the end of the year, and up to 40% of revenues beyond 1998.
o North America. Business in North America was good, with the carrier market having the largest amount of activity.
o Asia/Pacific. With the exception of a large order from Japan, the Asia/Pacific region was soft. The company does not expect business in the region to pick up until the second half of 1998.
7) Major customers. Ascend had only one customer that accounted for more than 10% of its revenues.
8) The GRF Switch. Revenues from the GRF were down slightly, off of a small revenue base.
9) Headcount. At the end of the March quarter, the company had approximately 1,969 employees, up from 1,842 at the end of the previous quarter.
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So, for those that were leaving if ML upgrades, stick around, they didn't.
Dennis |
