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

To: gs who wrote (3695)	1/21/1998 6:19:00 PM
From: Paul Fine	Read Replies (2) \| Respond to of 6980

Here is a summary from Reuters re downgrades today: NEW YORK, Jan 21 (Reuters) - Shares of computer network maker Bay Networks Inc, which just reported second quarter results, fell on Wednesday on worries about the outlook for revenue growth in the upcoming third quarter, analysts said. Bay stock fell 2-3/8 to 27, after the company raised concerns about sequential revenue growth related to product transition on a conference call with analysts to discuss its second quarter results. "The outlook for the third quarter was pretty cautionary," said Stephen Koffler, an analyst at Donaldson, Lufkin & Jenrette. "You put that together with some things in this quarter, which were kind of troubling, like backlog going down and channel inventories going up." The main issue in the third quarter related to the transition to Bay's new Accelar routing switches from its older BayStack switch product, which are lower-end devices for corporate networks, analysts said. "Accelar is starting to cannibalize some of Bay's existing product base," Koffler said. Deutsche Morgan Grenfell analyst Noel Lindsay, who downgraded his rating on the shares to accumulate from a buy, said Accelar was an interesting but complicated product whose ramp-up seemed to be taking more time than initially thought. The rollout of Accelar had been expected to offset increased competition facing the older BayStack switch in the third quarter, he said. "The conference call brought into question sequential revenue growth in the third quarter," Lindsay said. Prudential Securities also cut the stock to hold from buy and Lehman Brothers said it lowered its earnings estimates after Bay reported operating profits of $0.28 per share versus a loss of $0.90 per share in the same quarter last year. Including a $12 million charge for an accounting change, the company earned $47.5 million, or $0.22 per share. Wall Street had expected Bay to earn $0.26 per share in the second quarter, according to a First Call consensus survey. "Following somewhat mixed second quarter results, we are reducing our high end estimates to consensus levels to reflect dilution from acquisition and more conservative sales growth, notably in the seasonally slower third quarter," analyst Tim Luke said, while maintaining his outperform rating. Let me add a thought of my own that I haven't seen here yet. The North American market, I believe, represents about 60% of revenues(correct me if I am wrong, but follow the order of magnitude argument). It was down sequentially(maybe only alittle) from the 1st qtr. Well, 60% of the $600MM done last qtr is $360MM sales in NA. If Bay had achieved only 5% growth, it would have added another $20MM in sales to this qtr and blown the doors off of every estimate out there!!!! The softness in NA should be a major concern to Bay and us, because without resurgence in this area, no quantum leap in sales/earnings/stock price can occur. IMO, this is the cautionary area the analysts are worried about and the discussion/lack of specificity on this subject in the conf. call(which I heard in its entirety) did not do anything to alleviate this potential anchor to sales growth in the current qtr. I am not suggesting Bay should lie about it, just that it is a legitimate impediment to sales growth overall. Paul