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

To: rupert1 who wrote (3150)	12/15/1997 6:17:00 PM
From: George A. Roberts	Respond to of 6980

I wonder if the E-mails caused this ? Here is the latest spin: FOOL ON THE HILL 12/15/97 An Investment Opinion by Randy Befumo Shame on Shareholder Relations Shareholder relations hit a new low last week. Those who live within the happy time continuum where individuals and institutions have equal access to information got a quick double jolt of reality from the likes of Bay Networks (NYSE:BAY - news) and Fine Host (Nasdaq:HOST - news) . Whether it was carefully crafted management doublespeak to the press accompanied by obvious plain talking to the institutional contacts or no speaking at all, rebuffed individual investors were confused, stupified, or otherwise just plain stunned by the information, disinformation, and just plain lack of information while the two stocks wilted under intense selling. Going in alphabetical order, we have the all-to-common story of Bay Networks last week informing Donaldson, Lufkin & Jenrette analyst Stephen Koffler during a company visit that revenue growth would not meet expectations. Specifically, Koffler stated in a research note published Wednesday morning that the company's line of routers would turn in flat quarter-over-quarter growth in the fiscal second quarter ending December 31. Koffler concluded in the note that Bay's router growth was "slowing considerably" and would not deliver the kind of results in fiscal 1999 that the company had originally planned on. Although Koffler only cut earnings estimates for the full year by two cents to $1.08 per share, the implications for next year were still undetermined. Bay Networks management responded to this looming crisis with one of most skilled examples of press release doublespeak ever witnessed. A company official told Dow Jones late Wednesday that it stands by its second-quarter earnings per share estimates of $0.26 and anticipates that revenue overall will grow sequentially. Conspicuous in its absence was any confirmation or denial by Bay that router growth was de minimus and whether or not the company's estimates for the rest of the fiscal year would be impacted by new assumptions about how much the router business could grow. The company also carefully avoided saying whether or not it would make its revenue estimates, indicating that more than likely revenue would be off as Koffler had confided to his institutional clients. Although for "competitive reasons" Bay does not offer individual investors a breakdown of where its revenues come from in its federal filings with the SEC, Nutmeg Securities Ltd. analyst Andy Schopick stated in the same Dow Jones wire story detailing Koffler's note that routers and shared media hubs account for "most of Bay's revenues." With routers not panning out and shared media products suffering "an industry wide decline in demand" for Bay in fiscal 1996 that has continued until today, the picture hardly looked good for the company. However, by skillfully handling the media and affirming earnings estimates for the quarter (without confirming revenue estimates), the company got the mass of individual investors to stay put. (In fact, Bay investors got very defensive when the potential that Bay would miss its revenue estimates was mentioned in this column Friday .) As much as one can rag on Bay Networks for sending a different message to institutional analysts during company tours than it did to individual investors, at least itwas talking to somebody. As horrible as it is to give institutional analysts a sense of the revenue breakdown without disclosing this same info to individuals in spite of 18 filings made to the SEC over the last twelve months, at least it was saying something. By comparison, management at Fine Host is not even keeping their analysts informed about what was going on until late Friday when the stock closed at $10 -- down $18 in the past four trading days. The food service contract manager admitted on Friday that it would have to restate the last three fiscal quarters because of how it capitalized certain contract rights. Although Fine Host has not said anything about the magnitude of the error, it did fire its Chairman and Chief Executive Richard Kerley as well as the Treasurer Nelson Barber -- never a good sign. Currently halted at $10 1/8 for news dissemination, anyone unfortunate enough to own Fine Host will probably lose a substantially chunk of his money by the time this debacle is through. The fact that all the while someone at Fine Host was communicating that something bad was going on to someone is a classic example of how the institutional analyst can get the shaft right alongside the lil' guy. The company's recent $175 million bond offering convertible into stock at $44 1/2 was purchased by institutions, not individual investors. The analysts and investment bankers on the deal are feeling just as bad (if not worse) as the individual investors holding the stock. In a classic example of just how inefficient information dissemination can be, someone trading knew on Monday or Tuesday that something was wrong and initiated a sell-off, triggering a five-day extravaganza that saw more than two-thirds of all of the shares outstanding trade. What can individual investors (or even the occasional institutional investor) do about information inefficiencies of this scale? Events like this should remind investors that the company that informs the most and the quickest is often the best, even if a peer company might be a little cheaper on a pure numbers basis. Berkshire Hathaway Chairman Warren Buffett has reminded investors time and time again since 1977 in his revered Letters to the Shareholders that the quality and caliber of the management team is one of his key investment criteria. Straight and forthcoming reports that give detailed revenue breakdowns and fully notate how the accounting for amortization and depreciation is done is the ideal. Investors who settle for nothing less will rarely be disappointed. Investors who simply do some quick math or take a glance at a chart will unfortunately be disappointed quite a bit.