Top Stories: Ascend Ekes Through
By Kevin Petrie
Staff Reporter
10/19/98 8:18 PM ET
In sports they call this winning ugly.
Data networker Ascend (ASND:Nasdaq) beat analyst
expectations but not in a very convincing manner.
Most curiously, Ascend wrote off an $8.7 million loan to an
unnamed customer rumored to be a new "competitive local
exchange carrier" or CLEC, a breed of new carriers that have
high capital expenditure budgets but face tough times with
financing these days.
Ascend's surprise move could signal new risks for suppliers
and for CLECs.
There's nothing wrong with writing off a loan that might even
be paid back in time -- in fact, it's a pretty conservative
accounting move. But it raises the question about whether
Ascend was, in effect, buying a piece of business.
"This new wrinkle in the financing will create some
questions," says analyst Nikos Theodosopoulos with
Warburg Dillon Read, not an Ascend underwriter. He
declined to comment further. Ascend CFO Michael Ashby
said in a conference call with analysts that this would not be
an ongoing problem and added that the company had
accounted for such a risk when predicting strong future
earnings.
Surprisingly, sales of large switches to phone carriers -- the
growth driver earlier this year -- actually slipped a bit from
last quarter because Ascend kept a big client in Japan
waiting for vital software. Taken together, the loan write-off
and the product delay might dent Ascend's record of crisp
execution in recent quarters. In summer 1997 Ascend gave
European customers faulty software for a different product,
roiling its sales and stock.
On a positive note, the company says outside of Japan it
increased sales with switches. And switch revenue still was
53% higher than one year ago. Another surprise was the
strength in sales of older products, the so-called "remote
access" units, used for linking telecommuters and Internet
surfers to networks. The remote access sales grew 29%
from the prior quarter and rebounded to nearly half Ascend's
revenue stream. The pros had expected very little from this
technology.
As reported, Ascend beat estimates by one penny, reporting
profits of $66.1 million or 32 cents per share compared with
$40.1 million or 20 cents a share one year earlier. Revenue
grew 37% to $370.3 million from $270.4 million.
Investors were not impressed. After the results were
announced, after the close of market, Ascend shares fell 1
7/8 to 46 according to Reuters Instinet. |
