The Good News and The Bad
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Fore Systems Inc. (FORE) 23 3/4 +7/8: BA Robertson Stephens upgrades provider of ATM switches, LAN switches and network interface cards from "market perform" to "buy" based on greater demand for ATM equipment in both wide and local-area networks; believes that ATM will be one of the fastest growing sub-segments in the networking industry; company's ATM product lines have been increasing as a percentage of revenue and expects LAN switching to accelerate due to strong backlog position in March qtr; raises FY99 EPS from $0.61 to $0.63 and FY00 from $0.81 to $0.85.....
CBS Mkt Watch:
Fore Systems Inc. (FORE) rose following an upgrade from BancAmerica Robertson Stephens. The firm boosted its rating to "buy" from "market perform." Analyst Paul Johnson cited accelerating demand for asynchronous transfer mode equipment for wider area and local area networks. Johnson expects improved inventory management in the June quarter and believes new products will also add to future revenue. Shares gained 15/16 to 23 13/16.
Jas - in this article, Richard Woo, analyst from Thomas Kernaghan sees Fore Systems as being one of the losers in the Lucent/Yurie deal...that will further "marginalize" the smaller networking companies. My own opinion is that only time, and future sales & earnings will tell whether he is right or wrong. However, it seems to me that Fore has at least put itself in a position where it has a fighting chance. By buying up companies like Alantec and Cell Access it has broadened out it's product line and given customers a way to migrate existing LAN systems to ATM...so you have migration from existing desktop systems up. Now with their product introduction of AX-4000, this is a carrier class/enterprise class backbone ATM switch. While it is an important product in it's own right, it will now also provide migration from the other direction - that of a campus backbone WAN, and Telco backbone towards local area networks and desktop applications. My understanding is that it's scalability is acheived through adding additional nodes in order to bring it up to 100 Gbs. I don't believe any other ATM switch manufacturer provides that kind of scalability/bandwidth upgrade possibility. Would be interested in your/all thoughts & comments. One further note, its that my company installed their first ATM switch (not Fore) over a Sonet OC-48. One month after turn-up, we already are out of bandwidth. Peter.
Lucent to pay $1 billion for Yurie
By Binti T. Harvey, CBS MarketWatch Fri May 01 23:00:18 1998
MURRAY HILL, N.J. (CBS.MW) -- Lucent Technologies Inc. agreed to acquire Yurie Systems Inc. in a $1 billion cash transaction Monday, in a move that firmly establishes Lucent in the data-networking market while posing a threat to smaller, more focused network-equipment makers.
"It's a good buy, but the price is a little too hefty in my opinion," said Richard Woo, networking analyst for Thomson Kernaghan & Co. "But Lucent has deep pockets so its probably not going to hit them too hard." .Woo said the acquisition benefits both companies. Yurie will fill in Lucent's "product gap," providing the last component of its end-to-end networking solution strategy and making it more competitive. "Lucent offers the core network, the access portion and now has the edge network technology," Woo said.
The buy will also secure Yurie's future, as the company only offers one product -- a liability in today's network equipment industry.
In the rush to provide end-to-end networking solutions, Woo sees smaller companies losing out. Lucent's latest purchase of Yurie will likely take another chunk of the already dwindling market share of companies like Fore Systems (FORE) and Newbridge Networks. Ascend, which is even more firmly positioned, will have to look over its shoulder as Lucent steps into the wide-area-network arena.
"Smaller networking companies will either have to expand their product portfolio or offer a best-of-the breed product to compete," Woo said.
Woo called the acquisition significant for Lucent as well as the industry, another sign of consolidation by the bigger players and marginalization of smaller companies. Woo sees the line between telecommunications and data networking equipment blurring as Lucent, Cisco (CSCO) and Nortel (NTEL) expand their markets.
."Everybody is in each other's backyards," Woo said. "they're using their resources to step into other markets which are growing faster than their core products."
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