Jach,
Got this tidbit off the ASND thread. You might want to add this to your "research"..
U.S. Networking Companies Face Mixed Quarter: Industry Outlook
Sept. 21 (Bloomberg) -- Cisco Systems Inc. and Ascend Communications Inc. will
report higher
third-quarter earnings on strong sales to phone companies, while other big computer-
networking
rivals were hurt by slowing demand and price cuts in the corporate market.
Earnings at 3Com Corp. will be sharply lower as the No. 2 maker of networking
equipment
slashed prices on its inexpensive equipment. Slowing sales of No. 3 Cabletron Systems
Inc.'s
older gear cut into its profit.
No. 5 Ascend is benefiting as Internet providers and phone companies buy its switches
to combine
voice and data on their networks. No. 1 Cisco also is pushing into the
telecommunications market,
while enjoying wide profit margins on the expensive routers and other Internet products
it sells to
large businesses. ''Cisco has won the local area network (corporate) market. Now the
action is in
the telecom market,'' said Patrick Houghton, a Wheat First Union analyst, who rates
Cisco
''buy.''
Sales of Internet equipment to phone companies and Internet service providers are
expected to
reach more than $50 billion annually by 2002.
Cisco's profit is expected to rise to a split-adjusted 33 cents a share in its first fiscal
quarter ending
in October, up from 26 cents in the year-ago period, according to First Call Corp. The
company's
stock split 3 for 2 last week.
Ascend Rising
Ascend is winning a number of large contracts from local phone companies and Internet
service
providers, including a three- year agreement with Bell Atlantic Corp. valued at $50
million to $100
million.
The company's powerful asynchronous transfer mode, or ATM, switches it acquired
from Cascade
Communications Corp. last year are in demand by telecommunications companies
looking to
unclog Internet bottlenecks.
Ascend also has strong ties to its Internet customers thanks to sales of its remote-access
concentrators, which route incoming Internet calls.
The company will earn 31 cents a share in the quarter ending in September, according
to First Call,
up from 20 cents a year ago. It will be Ascend's fifth straight quarter of earnings growth.
''Ascend
has gotten most of the important (contract) wins this quarter'' from phone companies,
said Craig
Johnson, an analyst with market researcher Pita Group in Portland, Oregon.
Ascend bolstered the product line it sells to telecommunications carriers when it agreed
to buy
Stratus Computer Inc. for $948 million in stock. The purchase, announced in August, is
expected
to close in late September.
Cabletron, 3Com
Earnings at 3Com are expected to be 20 cents a share, less than half the 47 cents
earned in the
year-earlier period. For 3Com, it will be the fourth straight quarter of steep declines
since it bought
modem-maker US Robotics Corp. in June 1997.
The company, which was hurt earlier this year by stiff price cuts on its telephone-based
modems
and PC connector cards, is looking to increased modem sales to improve profit. ''The
pickup in the
modem business could be the start of the turnaround,'' said Paul Weinstein, an analyst
with CS
First Boston who rates 3Com ''strong buy.''
Although modem sales usually increase because of back-to- school and holiday buying,
3Com may
still be hurt by competition from Cisco and price cuts on 3Com's networking systems
products,
used to link computers in corporate networks. Those products generate higher profit
margins than
modems and connector cards. ''They still have to find a way to compete with Cisco in
their
systems business,'' said Martin Pyykkonen, an analyst with CIBC Oppenheimer, who
rates 3Com
''hold.''
Cabletron is expected to report a lower profit for the fourth straight quarter as sales of
its older
products using an outdated technology plummet. Even so, the new, faster products it
acquired
when it bought Yago Systems Inc. in January are expected to contribute significant
revenue for the
quarter. ''It won't be a blowout quarter, but it will be an improvement'' from previous
quarters,
said Farrokh Billimoria, an analyst at Hambrecht & Quist who rates Cabletron ''hold.''
The company is expected to earn 8 cents a share for the quarter ended in August, down
from 37
cents a year earlier.
Xylan, Fore
Two smaller networking companies, Xylan Corp. and Fore Systems Inc., are expected
to report
higher profits. Many analysts speculate that one or both may be an acquisition target of
Lucent
Technologies Inc. or another large telephone-equipment maker.
Lucent and European rivals Ericsson AB and Alcatel SA have been pushing into the
U.S.
networking market by buying smaller U.S. companies. ''Fore and Xylan have the
technology the
big guys want,'' Pita Group's Johnson said.
Fore gets two-thirds of its revenue from sales of switches using ATM technology. Its
sales have
been boosted by a delay in a standard for a rival technology.
Xylan makes expensive, sophisticated switches sold to corporations and has been
helped by strong
European sales.
Still, Xylan, which gets 20 percent of its sales through a distribution agreement with
Alcatel and
another 20 percent from a similar agreement with International Business Machines
Corp., warned
last month that sales through the two companies will fall in the third quarter because of
an
oversupply of Xylan products. Company Qtrly Year-Ago No. Analysts
Est. EPS Cisco Systems Inc.^ 0.33 0.26 30 3Com Corp.+ 0.20 0.47 29 Cabletron
Systems Inc.&
0.08 0.37 21 Ascend Communications Inc.~ 0.31 0.20 24 Fore Systems Inc.) 0.14
0.07 15 Xylan
Corp.< 0.22 0.10 11 ^1st fiscal Qtr ends Oct. 24, 1998 +1st fiscal Qtr ends Aug. 28,
1998 &2nd
fiscal Qtr ends Aug. 30, 1998 ~2nd fiscal Qtr ends Sept. 30, 1998 )2nd fiscal Qtr ends
Sept. 30,
1998 <3rd fiscal Qtr ends Sept. 30, 1998 All estimates according to First Call Corp.
o~~~ O |
