Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: FUZFO who wrote (35123)	2/17/1998 1:00:00 PM
From: Quaddad	Respond to of 61433

Bull Run: Ascend's Recent Run May Have Some Strength Behind It By Kevin Petrie Staff Reporter 2/17/98 10:48 AM ET Holding a grudge against Ascend (ASND:Nasdaq) for its collapse last year is becoming a costly miscalculation. Since Dec. 29 Ascend's shares have soared about 50% to about 35 1/16, outpacing the 12% average gains by networkers, according to the Baseline data service. Ascend, which struggled with bugs in its products in 1997, is luring back investors who are betting that it can make good money while dwelling in giant Cisco's (CSCO:Nasdaq) shadow. A big reason is its acquisition last June of Cascade, whose high-capacity data products are winning business with phone carriers. "We got egg on our face" with Ascend last year, says Doug MacKay, assistant portfolio manager at shareholder Oak Associates, which originally owned Cascade. He's a bull now. Oak was already the largest shareholder on Sept. 30, with about 6.1 million shares, according to Technimetrics. His firm has purchased heavily since then, largely because of Cascade, reducing its average cost per share. MacKay says Oak is roughly breaking even on its Ascend investment right now. Oak also has a big stake in Cisco, whose $63.7 billion market capitalization dwarfs Ascend's $6.4 billion market cap. But the firm believes Ascend still can thrive with its "asynchronous transfer mode," or ATM, technology -- simply put, high-capacity data systems that ease bottlenecks on phone networks. MacKay points out that phone carriers typically prefer to buy from two vendors. "We believe that Ascend has learned a valuable lesson in quality assurance from the acquired Cascade," says analyst William Rabin at J.P. Morgan in a bullish Feb. 5 research note. Rabin says Ascend is shifting its focus to selling ATM and other gear to phone carriers. Previously the company made of its revenue selling "remote access" gear to Internet service providers. His firm has performed no underwriting for Ascend or Cascade. In fact, the Cascade chunk of business generates 42% of total revenue now, and is expected to surpass Ascend's remote access business for ISPs shortly. Two Cascade products, the CBX 500 and GX 550 switches, enable phone carriers to shovel large volumes of digital data across the core of their networks with ATM. Industry experts say the products break new technological ground. To be sure, Ascend also has bottom-fishers to thank for some of the bounce. "At least in our shop, it's been mostly valuation players" purchasing the stock, says one trader. "I have not seen any big institutions coming in and buying a million shares." Others see Ascend as a trading stock -- not a keeper. "Should I sell Cisco and buy Ascend?" says Chris Bonavico, assistant vice president at TransAmerica Premier Mutual Funds, a Cisco shareholder. "That might be a good short-term play, but not a good long-term play." Then there's the simple fact that some investors were burned too badly to buy Ascend's stock again. Ascend's main line of business faltered in 1997 when buggy software prompted ISPs to slow their purchases of the Ascend "remote access" products they use to link customers to the Internet. Profits crumpled and disenchanted investors forced the stock down 70% from January to November. But Ascend is cheaper than Cisco on a valuation basis. After peaking at a trailing price-to-earnings ratio of 80 last year, shares now trade a bit over 30 times trailing earnings (excluding big merger charges). Cisco's P/E ratio is 51. Mark Yu, research director at Norman L. Yu & Co. in Newport Beach, Calif., says his private investment firm started buying Ascend shares again last month after pulling out last year. While the firm also owns Cisco, Yu says that Ascend looks like a better valuation play right now. More importantly, Ascend is racking up impressive wins with its advanced technology acquired from Cascade. Williams Communications (WMB:NYSE) unveiled in January a $150 million deal to purchase ascend ATM and frame relay equipment. AT&T (T:NYSE), which intends to pour $7 billion into its network this year, is rumored to be purchasing Ascend's ATM units instead of Cisco's. An AT&T spokesman declined comment, and says no announcement is imminent. Ascend could not be reached for comment. And while Newbridge (NN:NYSE) sells a strong ATM product, the entire market is expected to grow robustly in coming years. Cisco disputes the contention that its products take a back seat. Marketing director Morgan Littlewood at Cisco says that it has been shipping a stronger BPX switch for some time, and that its dominance in other product lines doesn't hurt either. "We can also offer a full array of technologies, including routers." But Ascend might not need a full bag of tricks to prosper. The irony of its name might fade from memory. copyright 1998 TheStreet.com