[Morgan Stanley report]
Gary --
I tried the URL I posted and kept getting my own post. Really weird. Felt like "Pete and Repeat went down to the pond, Pete fell in and who was left?"
At any rate, I'll just copy your report here since it's definitely worth a second read.
As for the stock price, a week from today I suspect you'll be smiling that you even cared.
Cheers!
Pat
<<<
To: getgo234 (29558 )
From: Gary Korn Wednesday, Jan 7 1998 10:39PM EST
Reply # of 30660
Report # 1 from Scottsdale Morgan Stanley conference:
Thread,
A considerable amount of information to report from the Scottsdale conference. This may take several posts.
1. The first presentation was by Mory Ejabat at 9:30. Not much in it. But after that presentation, he was cornered by 2 or 3 persons who seemed to be analysts. They asked him why the stock had risen before his talk and whether he had spoken to anyone before. Ejabat said that he had spoken to one investor group before the talk. Pressed, he then said to this little group:
a. Book to bill will exceed 1 for the 4Q
b. "We met our plan" for the 4Q
c. The plan for 1998 is a 30% revenue increase and
he is optimistic about meeting that plan. (In a 1 hour
break-out session, this number was later changed to 15-20%)
2. After the main session at 9:30-10, about which there is little to report, there was a 1 hour break-out session from 11:30 to 12:30. In attendance were Mory and Michael Ashby. Mory is younger than I thougt. Ashby is tall, slender, pale and is not a glad-hander. Here is what was said:
a. The $150MM Williams contract is based on the GX550. Deployment starts 1Q98 and will last "for a few years." There are only 2 vendors for this deal: ASND and Nortel (who will provide transmission equipment). ASND was the only choice because CSCO does not have an OC-48 product. USWest, from which Williams will purchase bandwidth, cannot dictate the product to be used by Williams.
b. I asked if the Williams contract might exceed $150MM. Mory said "we believe there will be more to the contract." I asked in what. Ejabat said that the additional money would be in gigabyte and terabyte routing equipment, etc.
c. I asked if the UUNET relationship remained strong. Ejabat said that it remains strong and "is getting stronger."
d. I asked if ATT Worldnet was using ASND products. Ejabat said that Worldnet is "totally migrated to an ASND platform."
e. I asked if ASND was now supplying PacBell. Ashby said that PacBell had been a major customer for 2 years.
f. Revenue from RAS/RAC will be flat in 1998 over 1997 (more volume, but less per port). Pricing is expected to flatten, from about 300/port now to perhaps 225/port by end of 1998.
g. Pricing pressures will pull gross margin down by 1% over 1998, which Ashby characterized as a "modest" and "linear" decline over 1997.
h. ASND gained ATM market share in 4Q97. Ejabat said that ASND had had "major success" in ATM during the 4Q.
i. The big focus in 1998 will be selling to CLECS. That is because ISPs are tapped out for RAS/RAC (money wise) and CLECS want to move into the big-boys area. As Ejabat said "Carriers are buying ISPs, ISPs are filing to become CLECs and CLECS are early adopters of technology." Also, this area carries higher margins, as RBOCs and CLECs are more attuned to reliability than to price per switch.
j. R&D will ramp up to 13 1/2 percent of revenues, up from 10% in 1996. This is due, in part, to reliability demands by telcos. S&M will go down towards 20%. G&A remains at 3%. Looking at mid 20% operating income, which is "very doable" and "up somewhat" from past several quarters.
k. One RBOC has deployed IP Navigator and it is "pretty promising."
l. I asked if ASND were doing a private placement. Both Ashby and Ejabat laughed. They both said "why would we need that? We have 600MM in cash [up from 550MM last Q] and 250MM in receivables."
m. No problem with the 56k upgrade, when a final std. is approved.
n. The big thrust of ASND is on meeting backbone demands (backbone demand doubles every 3 months, per Ejabat, and every 3.6 months, per a WCOM presentation I sat in on). By sometime in 1998, core switching will provide more revenue to ASND than does RAS/RAC.
o. CSCC is already accretive. I said to Mory, "that CSCC purchase seems to have been a good idea, given the leveling off of port revenue and the increase in switching revenue." Mory laughed and agreed.
p. Any version of DSL will have a major positive impact on ASND, as it demands backbone. However, Mory said that there really is no major deployment of DSL on the horizon this quarter. DSL roll-out is much slower than projected. But, when it hits, it will be great for ASND.
q. ASND has no plans to be on the front-end of cable modem access. However, again, the cable companies need backbone. ASND is already supplying one cable company with a CBX500 for gigabyte routing and a GRF400 to tap into the network. Again, any backbone use, regardless of the source, is good.
r. In 4Q, service (with a 40% margin) was 4% of ASND business. They have now created a new business unit and the objective is to increase service to some 15% of revenue.
s. The revenue target growth for 1998 is 15-20%. Slower in Q1, faster thereafter. After the meeting, I asked Ashby whether he hadn't used bigger numbers in the past. He said "let me put it this way...we are doing to do low single digit rev. increase in Q1, high single digit rev. increase in Q2 and double digit rev. increase in Q3 and Q4."
t. Ashby also said that this projection assumed zero percent revenue increase from non-Japan Asia. And that any revenue increase in non-Japan Asia would be "gravy."
t. Ashby also said: "Analysts project 300MM and 25cents/share for Q1...Frankly, anything over that, I don't care. Our primary objective is to regain the respect of the Street. We will meet the projected numbers, towards the high end each time." I got the definite sense that Q198 is not a problem, that it is effectively met already (or certainly will be).
u. Ashby also said, after the meeting, that "we will see DSO decline somewhat" as visibility is increased.
v. During the break-out, Mory said that "we are seeing major RFPs for domestic and European expansion."
w. Employee turnover has decreased a lot. Trending toward 15% turnover ratio, which is lower than most high tech companies. Employee options were repriced twice, the latest at about 25 (actually 24 15/16).
x. I asked about acquisition rumors (either with ASND as buyer or as target). Both Ejabat and Ashby declined comment.
y. I asked about the Diamond multimedia dual modem, and whether this had caused inquiries from ISPs. Ejabat said that it had generated a lot of inquiries, but no buying based on Diamond dual modem per se.
z. The MaxTNT is to be revented substantially in a new version. (Existing is from Left to Right. The new box will vent from bottom to side to back to top.) The software works fine now.
aa. A GRF s/w upgrade was released internally today. Many good prospects for this box. All known compatibility problems are fixed. Next new GRF box will be in 1999. (GRF does not seem to be a super-high priority to me, as they several times said it was "on hold.")
Bottom line: I believe the company sees its greatest revenue growth in the CSCC side of the business, i.e. switching and meeting backbone capacity. It sounds as if the business is there, is growing (backbone doubles every 3 months) and could grow in big spurts at times. Asia, when it comes back, will be gravy to the bottom line.
Gary Korn>>> |
