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

To: Ken Twining who wrote (4446)	3/6/1998 8:47:00 PM
From: George A. Roberts	Read Replies (1) \| Respond to of 6980

Top Stories: Worries About Bay's Current Quarter Persist By Kevin Petrie Staff Reporter 3/6/98 6:28 PM ET Bay Networks (BAY:NYSE) fell Friday afternoon as investors fretted about the recovering networker's ability to finesse a product transition this quarter. After rising with the broader market early in the day, Bay's gains were eroded away in the afternoon. Bay ended the day down 5/16 at 29 9/16, after hitting an intraday high of 31 1/8 shortly before noon. Bay's fall stood in sharp contrast to the overall market's strength, which pulled up most of Bay's peers. For instance, Cisco (CSCO:Nasdaq) climbed 2 1/2 to 64 3/8 and Ascend (ASND:Nasdaq) was up 2 9/16 to 35 1/16. Short-term questions are nagging Bay. While CEO Dave House, an Intel (INTC:Nasdaq) alumnus, has orchestrated a turnaround in the last year and a half, he has been circumspect about prospects for Bay's fiscal third quarter ending March 31. Sales of Bay's new Accelar and BayStack products might not pick up the slack for older units in time to meet earnings estimates for this quarter. Analysts expect the company will earn 28 cents a share in the period. Those fears were heightened after CFO David Rynne, speaking at a Goldman Sachs gathering Wednesday, said the company was "hoping for a back-end loaded quarter," according to analyst Jon Sederquist at Phoenix Investments. Sederquist figures Bay might be stretched to meet sales goals in the March quarter. Sederquist's firm hasn't owned shares of Bay recently. A Bay spokesman declined comment. But a trader says the talk turned negative on Bay on Friday. "People are worried about this quarter" because some corporate customers might delay network purchases until next quarter, said the trader, who asked not to be named. Rumors also circulated Friday that Bay would issue a profit warning, although it seems unlikely that the company would warn so early in its busiest month. However, the June quarter still looks strong, the trader said. Analyst Joe Bellace at Merrill Lynch failed to nurse Bay's fortunes Friday. He reiterated his accumulate rating on the stock in a morning research note, estimating that Bay will earn 27 cents per share this quarter, which is one penny short of the First Call consensus. Bellace predicts the new Accelar line of routing switches for corporations will generate $40 million to $60 million in the period, "with minimal cannibalization of the existing product line" -- a bullish stance, given the current worries of investors. Price cuts might exert pressure on gross margins, he wrote. Bellace estimates that about 50% of quarterly revenue will be crammed into March. He could not be reached for comment. While Bay has been improving in the past 18 months, it trails industry leader Cisco. For instance, Bay's market cap is $6.3 billion, while Cisco's is $62.2 billion.

To: Ken Twining who wrote (4446)	3/7/1998 4:18:00 AM
From: rupert1	Read Replies (1) \| Respond to of 6980

Ken: I did not know about the COMPAQ warning when I posted. In COMPAQ'S case, I think a Friday warning is reasonable because it is such a widely held stock, and the weekend will give analysts and shareholders an opportunity to put things in proportion and squeeze out some of the emotion. In the case of COMPAQ the market has been leery for some considerable time about its inventory levels. Its recent takeover is also the cause of concern about short and mid-term earnings The combined effect of these warnings, and there will be more, may knock the market back again on Monday and throughout the pre-warning season. I do not know to what extent the networkers can impress on the Street that none of these warnings depress the amount of computer systems out there and the need for network connections among them, indeed, one could draw the conclusion that the market for better networking products is expanding faster than any other segment of the tech sector. Consequently, in a jittery, irrational market, BAY's position may be eroded in the immediate short-term. But in the absence of hard negative news, it is difficult to see that it has much more rational downside. From where I sit it looks more like we are in for a period of volatility in the share price spiced by short-term rallies, giving rise to a lot of trading range volatility. Remember we have just come through a period of stable and gently upward mobility in the share price (except for the quick spike up from 31.75 to 35.25 intraday or 33.15/16ths at the close of that day). To answer your question, if I had new money to invest I would be tempted to buy on the dips. There are levels at which such purchases would be no-brainers such as 25-27. Above that it is a closer call. For a short-term trader a purchase at 28-29, which might be the lowest the stock will see, could be the base for a nice quick rally to 31-33, before falling back again. For a long-term trader, defined as four months or longer, I think the current price of 29.50 is fine and anything lower is a bonus. The pre-warnings season, especially in a market at high valuations, is not going to be easy. Like everyone else I am guessing. Victor