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Technology Stocks : BAY Ntwks (under House) -- Ignore unavailable to you. Want to Upgrade?

To: John Koligman who wrote (2970)	12/3/1997 6:57:00 PM
From: Duke	Respond to of 6980

Commentary from Briefing for Newworks industry: INDUSTRY FOCUS Ratings Key: 1. Outperform 2. Slightly Outperform 3. Average 4. Slightly Underperform 5. Underperform. A split rating such as 2/3 refers to short-term/long-term and is used when there is a particular short term influence of note. Revisions Key: Date of last revision; N/new, +/upgraded, =/unchanged, -/downgraded COMP - NETWORKING....3/2.........11/20..........(-) Comment: Our upgrade of the networking industry in mid-September proved premature, as the networking industry short-circuited over the past couple months due to supply concerns, a weaker than expected pricing climate, earnings shortfalls and ratings downgrades. While the days of explosive triple-digit growth are now a thing of the past, it is important to remember that strong growth in the soho (small office/home office) and Internet/intranet markets suggest that the group will deliver average annual earnings growth of near 20%-25% over the next 3 years. By comparison, the S&P 500 is expected to post growth over the same period of 7.6%. Consequently, today's valuations in the networking sector are rather attractive from a long-term perspective. But valuations are only one consideration in gauging a group's future price movement. Momentum is another. Right now the industry's momentum is downright awful. Only group leader Cisco is hoding up relatively well. Ascend, 3Com, Cabletron, FORE, Newbridge and Bay have all posted sizable declines. While we contend that the worst of the selling is over for the sector, lingering earnings concerns (heightened by the SE Asian crisis) indicate that the group will do well to keep pace with the market over the near-term. Longer-term, favorable valuations, above market growth prospects and the a pick-up in industry consolidation (FORE, Newbridge and Cabletron are all possible candidates) suggest that group will bounce back and slightly outperform the market. Though Briefing maintains that additional downside risk is limited, we are lowering our rating on the sector from 2/1 to 3/2 to reflect the more clouded earnings outlook and the poor short-term technical tone. Stocks:Ascend Communications (ASND), Bay Networks (BAY), Cabletron Systems (CS), Cisco Systems (CSCO), FORE Systems (FORE), Newbridge Networks (NN), Shiva Corp. (SHVA), ThreeCom Corp (COMS), Vanstar Corp. (VST), Xircom

To: John Koligman who wrote (2970)	12/3/1997 7:29:00 PM
From: rupert1	Read Replies (1) \| Respond to of 6980

John: You have raised the concept of BAY as takeover candidate - COMPAQ, this time. House has tried to pour cold water on this recently, pointing out that employees in the industry expect better stock options and perks than they would get from a giant of a related industry. I realise that he was answering questions put to him, but wonder whether this line has been developed as a response to open speculation and perceived threats of a hostile takeover. Merger and take overs within the networking industry seem to dislocate the stock price of the acquirer, but perhaps this would not be the case if the acquirer was not a networker, proper. It seems to me that INTEL, MSFT, CPQ as well as LU and IBM are showing serious strategic interest in growing into networking. I would have thought that LSI was good for a few short-term points gain from its current price perhaps to 25-27 before backing and filling. Have you a view on SYBASE? Vepoc