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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Glenn D. Rudolph who wrote (20867)	11/4/1997 12:45:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 61433

Glenn, I agree The Reuters story had almost no information on earnings growth. What we're missing are the selling price cuts (as opposed to list prices) and potential reduction in component costs. Ascend's gross margin is roughly 65%. Without cost reduction a 20% price cut reduces the margin to about 43.8%. In order to generate the same gross profit sales would need to increase by 48.4%. Here's a simplified illustration. Assuming hypothetical sales of $100MM would give a gross profit of $65MM. Now assume sales increase to $110MM (10% increase), but the gross margin drops to 43.8%. The gross profit is $48.2MM. Regards, Paul