Interview with Cascade CEO
By Jon G. Auerbach
Staff Reporter of The Wall Street Journal
Cascade Communications Corp.'s shares fell 36% Friday after investors became concerned about
growth in its bread-and-butter frame-relay switches, but Cascade's chief executive said he expects
that several new computer-networking products will help offset any slowdown in demand for the
switches.
Concern about such a slowdown wiped $2.3 billion from Cascade's market value on Friday in one
of the biggest technology-stock routs of the year. Cascade shares fell $23.125 to $41 in Nasdaq
Stock Market trading after the Westford, Mass., company released fourth-quarter results.
Vowing in an interview that the company will "never have to rely on one technology, one product,
one customer" again, Cascade CEO Daniel Smith laid out plans for a broad diversification effort.
Cascade earnings actually topped a First Call analysts' consensus estimate -- rising to $23.4
million, or 24 cents a share, from $9.1 million, or 10 cents a share, in the year-earlier period. That
beat the analysts' expectations by a penny a share, but the company warned that revenue, which
more than doubled to $110.3 million in the latest period, would be flat in the current quarter.
Sales of frame-relay switches, which are devices that help shuttle information across a computer
network and account for a majority of the company's revenue, grew only about 7% from the
previous quarter. That was down from growth rates of about 20% a year earlier, according to
analysts.
Inventory figures released by the company showed signs that Cascade rushed to fill orders at the
end of the fourth quarter to meet expectations, a move that analysts believe will eat into sales in the
current quarter.
Mr. Smith said Cascade is moving rapidly away from its earlier dependence on frame-relay
products. In the year just ended, frame relays accounted for 75% of Cascade's sales, down from
about 95% just a year earlier, according to Neil Danzger, a telecommunications-equipment analyst
with Morgan Stanley in New York.
Cascade sees growth coming from several fronts. Its ATM switching products should grow to
between 25% and 30% of the company's sales this year. Analysts expect 1997 sales of about
$575 million. ATM, which stands for Asynchronous Transfer Mode, is a protocol that routes data
around a network by breaking the data into fixed-size packets. In 1996, ATM products
accounted for about 20% of the company's revenue of $341 million.
Cascade also sees growth from new "concentrators" -- devices that are used by Internet-service
providers and telecommunications companies to route dial-up calls from remote locations onto the
Internet.
Mr. Smith also expects growth from a software add-on known as IP Navigator, which lets
Cascade switches connect directly to the Internet. Shipments of the product will begin in the
coming months. |
