4/27/98 Cowen summary. Data Networking Industry
[Slightly dated info but still interesting]
cowen.com
Emerging Technologies For 1998 & Beyond:
Switching, Voice Over IP, VPNs
[ASND well positioned in these 3 areas]
The need for bandwidth in the LAN and WAN is likely to drive networking growth in
1998. Recently, vendor consolidation and new technology trends such as Gigabit
Ethernet, Layer 3 switches, Virtual Private Networks (VPN) and Voice over IP have
created some uncertainty in the marketplace and spawned new patterns of customer
buying. This has been exacerbated by declines in hub and switch pricing as well as
the potential for a pause in the need for LAN bandwidth, plus the virtual collapse of
economies in Korea, Indonesia and Thailand. As a result, industry analysts are now
predicting about 20% growth for the networking industry in 1998. This is up from
17% in 1997, but down from 24% in 1996. Meanwhile, product development
continues at a frenetic pace as time-to-market continues to be one of the industry's
keys to success. We believe our Strong Buy pick Cisco Systems (CSCO $76) is
particularly well positioned to take advantage of rapidly emerging trends in markets
such as high-speed LAN switching, wide-area connectivity, network management,
and new applications such as voice/fax over IP, network security and e-commerce.
-Christopher Stix, Vijay Rajamani, 4/27
Cowen & Co. makes a market in CSCO.
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Cisco Systems (CSCO $76)
Unparalleled Product Execution Closes Out The
Competition
Cisco Systems continues to outpace the networking industry by winning leadership
positions in the industry's fastest growing segments, including LAN and WAN
switching, carrier routing and remote access. Leveraging its unparalleled product
execution in virtually every product category, Cisco continues to significantly outpace
the competition. Breakout opportunities include the small business market,
end-to-end solutions and partnerships. These breakout opportunities should
contribute to steady growth as the company begins to penetrate the $90B market for
voice switching, transmission, and PBX equipment. Thus, we expect industry leading
top-line growth of 30% to 35%. During the remaining quarter of F98 and 1H:F99,
we expect Cisco to consistently achieve or slightly exceed Street EPS expectations.
As an industry leader, consistently outpacing the industry, Cisco deserves a premium
P/E. We are valuing the company based on a 36 P/E or a P/E to growth rate (PEG)
of 1.4, a significant discount to the PEGs of other industry leaders. We believe the
company will grow EPS 25% to 30% annually over the long term. Our new price
target is $90, 36x estimated C99 EPS.
-Christopher Stix, Vijay Rajamani, 5/6
Cowen & Co. makes a market in CSCO.
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Ascend Communications (ASND $33) [3/30/98]
[I believe Cowen has subsequently raised the rating to Strong Buy]
We have raised our rating on ASND to trading Buy (2) from Neutral (3). Q1 is on
track, and the company's core ATM business is doing better than expected. With
continued improvements in product quality and new software features on TNT
shipping, business keeps getting better. We expect an acceleration in H2:98 as
Europe gears up for continued telecom deregulation, Japan recovers and Latin
America service providers begin to deploy ATM backbones. In addition, new
product and customer announcements are likely in the near term.
- Chris Stix, 3/30
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