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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Helios who wrote (10079)	11/4/1997 2:49:00 PM
From: Mark Ambrose	Respond to of 77400

For the record, I cut & pasted today's Fool Plate Special from Yahoo Finance The Motley Fool - Lunchtime News. Here' the URL: fool.yahoo.com ---------------------------------------------------------------------- The Lunchtime News Nov 04, 1997 FOOL PLATE SPECIAL An Investment Opinion by Alex Schay Sinking Newbridge Canadian manufacturer and marketer of local and wide area network products NEWBRIDGE NETWORKS (NYSE:NN - news) headed south this morning, falling $8 1/2 to $49 3/4 after warning of flat sequential revenues in its upcoming second quarter and earnings "within 10% to 15% of the first quarter fiscal 1998 earnings per share." Translation? The company sees the distinct possibility that Q2 EPS will be $0.22(US) compared with Q1 fully diluted EPS of $0.26(US) and estimates that called for $0.31 for the quarter. "We are disappointed in the results for the second quarter," said Peter Charbonneau, President and Chief Operating Officer. Apparently, so are investors, after enduring the second profit warning in as many quarters -- last quarter Newbridge guided expectations lower after warning of revenue weakness in its UB Networks distribution unit. This morning's action erases gains that were made yesterday after J.P. Morgan initiated coverage on Newbridge with a "buy" and a twelve-month price target of $70 (the stock was up $5 1/4 to close at $58 1/4). Merrill Lynch entered the institutional ratings fray this morning downgrading Newbridge (in a squirrelly move after the guidance) to "near-term neutral" from "near-term accumulate." The cause of Newbridge's woes springs from a $25 million sequential revenue decline in its "enterprise networking unit," which consists of the company's "VIVID" switched routing system, the former UB Networks products, and related services. Much of the company's future success will hinge upon developments in this segment. Newbridge has relied heavily upon sales to telecommunications carriers, which represent roughly 65% of the company's total sales. The proportion of revenue derived from corporate network customers increased fractionally in the first quarter due to the acquisition of UB Networks, and the hope has been that Newbridge will serve a broader corporate base going forward with the help of gains in the overall enterprise segment. The company stated that second quarter revenue for its time division multiplexer (TDM) business will be equal to TDM revenue for the first quarter, and wide area network (WAN) packet revenue -- made up of frame relay and asynchronous transfer mode (ATM) systems -- is expected to increase sequentially by approximately 15%. Many have questioned the company's lofty valuation as its share price has appreciated over 60% in the last year before today's loss. The company has net margins of 9.87% and capital turnover of 1.35, compared with industry leader CISCO SYSTEMS (Nasdaq:CSCO - news) , which sports net margins of 21.72% and capital turnover of 1.90. Yet Newbridge's trailing earnings are valued by the maket at a 40% premium to Cisco's (based upon market capitalization and trailing net income). Yes, a company is valued based upon what it is expected to earn, but even here Newbridge trades at 35x 1998 EPS estimates of $1.43 (which will come down), while Cisco trades at 32x 1998 EPS estimates of $2.61. One key benefit for the company in the months ahead is its VIVID architecture -- the centerpiece of its enterprise network package. This architecture is a switching solution based on ATM, which the company hopes will generate sales for many more quarters to come.