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

To: Wizard Wannabe who wrote (4443)	3/6/1998 6:15:00 PM
From: rupert1	Read Replies (1) \| Respond to of 6980

WW: "A warning sounds reasonable..." Sorry, but a warning would be very unreasonable. In the first case, it is Friday. But more important BAY and House, personally, have been reassuring analysts very recently that things are on track. The co-ordinated PR effort has been that upgrading of old customers and the winning of new customers is proceeding at a good rate; that there has been market-share gains; that new products are being made available on time; that costs are being cut progressively; that everything is on track. With references to broader market concerns, BAY has emphasised that only 4-5% of revenues are derived from those regions of SE Asia which have been depressed and only 10% from the whole of Asia; that they expect to meet their Asia targets and are gaining new wins in China and Australia: that factors causing caution with Intel and Motorola are not directly relevant to BAY and the networkers. The only cautionary notes have come from House to the effect that analysts should not get carried away and expect upward surprises this quarter, although they can certainly look forward to an outstanding next quarter. He cautioned that transition to new products always presents the possibility of set-backs. He also said that although BAY wants to break the historical trend of lower sequential growth for this quarter it may not be able to for all the seasonal factors which have prevented it from so doing in the past. Those cautions were on the record before the recent sustained rally in the share price. There is no reason that they should suddenly be given ominous overtones. It is true that in the market psychology created by the Intel and Motorola warnings people like Murphy may wish to give these remarks more weight and we have seen that Lindsay of DMG and the guy from DLJ have emphasised caution. Again, all this was known before the recent rally. Nothing has changed. Against this caution are the growing number of analysts who are recommending BAY as a buy, although on the basis of reduced expectations for earnings. Two major houses made new recommendations last week and another confirmed its pre-existing recommendation. Your fear is based on the large block sales in what was otherwise a rising market today. If the heavy volume was almost entirely the result of block sales then we have to assume that an institution or institutions were selling. By definition, the general public does not sell blocks. But some institutions and some joe publics were buying. There are two reasonable possible causes of the selling, apart from the possibility of a warning. The first is asset allocation by an institution or institutions. Given the market concerns about the level of tech stocks prices, and the possibility of a sharp market correction, some institutions may want to pare back, until general concerns about earnings are passed. They would normally cut back from the second and third tier stocks in a sector. BAY may have been the unfortunate target today. Why today? Because it is reasonable for an institution to sell on Friday afternoon before an uncertain next week. The other possible reason is that a major house has decided to downgrade BAY and has alerted its clients in advance of publication of the downgrade. Since Murphy has included BAY on his list of companies that might be a candidate for earnings disappointment because of product transition one must suppose that there could be other analysts who would think the same way. But is is difficult to see how any analyst could give a serious downgrade in the absence of any hard information to contradict the company's general thesis that everything is on track. For a warning to be reasonable based on the block selling as you have suggested, presupposes that somebody has insider information about such a warning. However cynical of market machinations I may be it is hard to take this suggestion seriously. All things are possible, of course! Looking ahead to this period just before the last earnings, I suggested that these kind of market worries, the goings on at 3COMS and CSCO, ASIA etc could side-swipe the stock back to 28 (others would say the support level is in the 27s). But if what BAY is telling us is true, the stock should revert to the 31-33 range, which I would extend now to 30-33 range, and should move in volatile spikes to 34, 35 and a rush to 37 before earnings. In the end, all calculations rely on assumptions and these assumptions rely on the information provided by BAY as generally confirmed by third party sources and analysis. Victor