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

To: Mang Cheng who wrote (4873)	3/18/1998 7:03:00 PM
From: missing	Read Replies (1) \| Respond to of 6980

Interesting article from CBS Bay wins battle but may lose war By Binti T. Harvey, CBS MarketWatch Wed Mar 18 16:44:13 1998 Also on CBS MarketWatch IPO Report Earnings Surprises StockWatch SANTA CLARA, Calif. (CBS.MW) -- Bay Networks was flying high Wednesday after an analyst's upgrade overshadowed its third-quarter profit warning. Still, some analysts say that unless the company can keep pace with the changing face of the industry, its success will be short-lived. Shares of Bay (BAY) surged 9 percent as investors shrugged off the company's warning it will post a lower-than-expected profit in the third quarter. After falling as low as 23 1/2 in pre-open trading, shares jumped 2 3/8 to 26 3/8 Wednesday. The stock saw 11.2 million shares change hands, more than twice the average daily volume of 3.6 million. BAY NYSE Last Chg. 26 1/2 +2 1/2 % Chg. Vol. +10.42% N/A Day Lo. Day Hi. 25 26 1/2 Open Prev. 25 24 As of Mar 18/98 6:58 pm ET Last Trade Mar 18/98 5:09 pm ET 20 MIN. DELAY Shares began to turn around after Donaldson Lufkin & Jenrette upgraded the stock to "buy" from "market perform." "All the bad news is out there. They've got a good product cycle going forward and an attractive valuation," said analyst Stephen Koffler. Value-picking Richard Woo, networking analyst for Thomson Kernaghan & Co., attributed the bounce to bargain-hunting. "The stock's been coming down as people got wind of the problems, and there's a consensus that it's hit bottom, so there is some value-picking going on," said Woo. The maker of computer network equipment warned profits will fall below the 27 cents a share earned in its second quarter, missing analysts' consensus estimate of 28 cents a share. Bay cited weaker-than-anticipated demand for the lowered expectations. Merrill Lynch analyst Joeseph Bellace attributed the shortfall to traditional seasonality, price cuts on older technologies and product transition issues. Bay's much-anticipated higher-performance, lower-cost routing switch Accelar is expected to generate revenue and market share for the company, but hasn't yet shipped in large volume. Nevertheless, Bellace maintains an accumulate rating on the stock, saying June is typically the strongest quarter of the year. Other analysts took a more cautious stance. "We currently have it listed as a "market perform," said James Wade, analyst for Bankers Trust Alex. Brown. "Their success basically depends on Accelar, and the transition may not go as smoothly as expected. Cisco may come out with its own competing product before Accelar takes off." Competition, from Cisco and other large companies offering end-to-end networking solutions represents Bay's greatest threat, according to Woo. Bay operates primarily in the enterprise routing segment, which Woo sees becoming increasingly commoditized. "Standards and protocols have been set, so everyone is making networking products now -- even semiconductor and computer makers," Woo said. Woo expects Bay and other specialized or niche players to lose ground to companies offering end-to-end solutions. As Cisco, Lucent and Nortel broaden their product lines, he predicts the networking industry will follow the same route as the PC industry -- where several giants dominate the market, mid-size companies operate only marginally and small companies are swallowed up. "Bay has good products, but so does everyone else, and the pie isn't big enough for everyone." Woo said, "The bigger companies offer the best investment risk." Binti T. Harvey is an online reporter for CBS MarketWatch. cbs.marketwatch.com