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

To: Steve Morytko who wrote (31361)	1/21/1998 8:37:00 AM
From: jim detwiler	Read Replies (1) \| Respond to of 61433

Ascend licensed DSL technology from Aware about 6 months ago. It is software based technology that does not need to remove hardware to upgrade the speed so futures upgrades are software downloads only. Very profitable.

To: Steve Morytko who wrote (31361)	1/21/1998 9:48:00 AM
From: jim detwiler	Respond to of 61433

ASND: 4Q97 Results Ahead of Expectations Last night, Ascend reported its results for 4Q97 and 1997. The reported EPS for the quarter (fully diluted) was $0.24, $0.02 ahead of consensus and $0.01 above our estimate. ATM and Remote access (RAS) sales were strong in the quarter, led by ATM switching. EPS for the year was $1.06 versus our estimate of $1.03. For 1998, we are tweaking our numbers slightly downward from $1.22 to $1.20 to reflect some housekeeping in our model. Our expectations for 1999 will also come down as a result of our housekeeping from $1.54 to $1.50. As a result if the strong performance, we are reiterating our Buy rating in Ascend and feel that the worst is behind the firm and are urging our clients to take a hard look at the stock. Asia/Pac Rim sales in the quarter were OK, with weakness in the "Tiger" nations being offset by strong sales/performance in China. ATM product sales, led by the firm's CBX500 ATM edge switch were strong, up 175% sequentially. The firm is seeing a very strong preference among carriers for a multiservice ATM network with frame relay cards running on ATM switching platforms (yet another endorsement of Newbridge's (NN/NYSE/$30.50/Buy) very successful strategy with its 36170 and 36190 multiservice ATM switching system). RAS sales (MAX 4000 and TNT) accounted for 43% of total sales with strong growth in carriers and mid-sized ISPs. Sales to large ISPs were down sequentially due tot he strong growth seen in 3Q97 to those customers. Sales of the firm's TNT product exceeded those of the MAX 4000 for the first time this quarter. ATM and frame sales accounted for 42% of total ATM sales, with ATM up sequentially 175% and frame relay showing modest growth over the prior quarter. Enterprise product sales accounted for 10% of total service and training (a new category) accounted for 5%. Carriers accounted for just under 49% of sales in the quarter. The firm's newly announced GX550 backbone ATM switch, which won a notable contract in the Williams network, is expected to become a meaningful contributor to sales in 2H98. By way of refresher, the product is a large-scale backbone switch designed to aggregate frame and ATM traffic from CBX500 multiservice feeder switches at the network edge. Initial reports from industry sources indicate that the switch "works right out of the box," as witnessed by the Williams contract win so early in the Beta testing process. The firm's TNT access platform or RAS remains the industry leader with the Cisco 5200/5300 devices targeted at the MAX 4000 platforms. The firm indicated that it has yet to see any active competition from 3Com's HiPer large-scale RAS unit versus the TNT. With a new final 56K standard expected in February, Ascend is indicating that software-based upgrades (expected to be minimal) should be available to its entire base of 56K modem customers at the end of 1Q98 or early 2Q98. The firm also indicated that the primary competition in new multiservice contract bids remains Canada's Newbridge and Nortel. The firm's GRF high-speed switchedrouting product were rather weak with the product effectively being re-launched with better interfaces into existing traditional (e.g., Cisco) large-scale routers. While the Giga-speed routing market holds enormous forecasted potential, we feel confident going out on a limb saying that we strongly think that customer uncertainty/confusion over switched versus "switched routing" network upgrades versus traditional router-centric networks will likely extend the optimistic growth curve for such products for all vendors, including Cisco and its newly released GSR (our SBC Warburg Dillon Read "One Third Rule" - see earlier reports). Gross (64%) and operating margins (24%) for the quarter were on target with our expectations. Gross margins in 1998 are expected to hit 63% due to some anticipated price compression in the remote access business partially offset by an improving ATM-centric product mix. On the balance sheet, the firm ended the quarter with cash/equivalents/marketable securities of $475.4 million, down slightly from $507.5 million seen at the end of 3Q97 due to some merger-related expenses. Book-to-bill was greater than 1.0 at quarter end with both DSOs (72 days) and inventory turns (4.2 times) improving and targeted to improve further in 1998. The firm is indicating that employee turnover has bottomed out to what it now considers an industry norm. Ion closing, we are reiterating our Buy rating on Ascend, having upgraded the stock at $36.56 on September 25, following a downgrade at the end of 2Q97. At the time of our upgrade, we felt that the Street, as it is apt to do, had over-reacted to the downside of what had been spectacular successes for Ascend and had taken the stock to unreasonably low levels. Going forward, we believe there is no question that he stock is in a large number of investors' hands and analysts' "penalty boxes." While one quarter's success versus consensus may or may not be the catalyst to spike demand, we do feel that investors should take a hard look at the firm at these levels as we do feel (at the risk of playing trader) that the stock will begin a steady appreciation in 1998. Indications are that there is serious demand for the stock at these levels (demand that is looking for a catalyst). The firm is co-leader in the remote access space, the leader in 56K port sales and is taking its place again at the ATM and frame relay table with its competitors Newbridge and Nortel. Our 12-month price target is $45.