Mr. Pink's Picks: selected event-driven value investments Message Board

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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments

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To: Mr. Pink who wrote (4991)	12/7/1998 10:18:00 PM
From: Mr. Blonde	Read Replies (2) of 18998

Short VNWK I submit to you, the master, my entry for a shot at a Pinky award: Short VNWK at $35. Mr. Blonde ----------------------------------- Visual Networks (NASDAQ: VNWK $35) - Short sale This is a play where a technology that is piggybacked onto more dominant products gets gobbled up by the big players. e.g. remember when Quarterdeck's old QEMM386 memory manager (software for applications on PCs using more than 640kbytes) was completely obliterated with a new DOS upgrade from Microsoft. Next up, Visual Networks' "Visual UpTime" product. VNWK sells "Service Level Management" software to telecommunications service providers to strap onto Frame relay gear(and soon to work on ATM gear as well) to monitor performance and provide troubleshooting tools. Their product is called "Visual UpTime." But Cisco is now embedding these functions inside their frame relay boxes and others. See the CiscoView network management system and associated tools suites which are offered with no additional cost. Check out Cisco's Network Management Suite at cisco.com Valuation VNWK has shown about 70% annualized revenue growth for many quarters. As a result the valuation is very high. At $35, the company's price to annualized revenue this last Q is 13. It's annualized P/E is currently 80+. Book value is near cash value of $2.00 per share. Once revenues start to slow down because Cisco and others make VNWK's products redundant, the stock should trade below $10 at least. Service provider revenue is currently 65% of total and concentrated with three customers: Sprint 25%, AT&T 18%, MCI 17%, and others 5%. VNWK is a flash in the pan. Update: VNWK: Visual Networks ($35) is still being outdone by Cisco. I still expect the stock to crash when customers fully accept Cisco's own software for network management. Looking for the stock to trade in single digits in 6 to 18 months. VNWK has 3 to 6 months left of growing revenues max, then dissapointment. Wall Street should lower expectations sooner than that. The big networking customers supposedly like Cisco's monitoring software. They are ready to ship now. CSCO has 80% of existing base of routers etc. You can download new CSCO monitoring S/W into old units. Its a firmware upgrade for the boxes to enable the monitoring features. No volume production ramps necessary. Ascend/Cascade may still need to use VNWK. But they are less than 20% of the market. Basically, 80% of VNWK's market goes away.

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