To: Dennis R. Duke who wrote (1366 ) 4/13/1998 3:39:00 PM From: Dennis R. Duke Read Replies (1) | Respond to
J.P. Morgan Securities reports that we beat the number and built backlog for Q2. And "that's a good thing". They continue their "Buy" recommendation.More importantly, however, the company was able to build some significant backlog in the quarter, particularly in its wide area (WAN) ATM switching business which we believe gives the company better visibility heading into the second quarter. [As I said in the discussion thread, no more backended Q's] Ascend's vitals continued to improve with a book to bill greater than one in all major product lines, stable days sales outstanding (DSOs), slightly improved inventory turns, and additions to cash from operations. Remote access concentrator sales were stronger this quarter as the MAX TNT's stability continues to improve, but we expect the real revenue driver throughout the remainder of the year to be the company's core switching business, particularly the CBX 500 multiservice switch (frame relay and ATM) and the GX 550 high-powered ATM switch. Ascend has already signed several contracts for initial deployment of the GX 550, including contracts with GTE and Williams Communications, but the company has not yet booked any of these revenues. As such, we expect a good up-tick in ATM switching revenues in the second quarter. We also expect revenue growth to come from the company's new MAX 6000 mid-range remote access concentrators and from sales of 56K standards compliant MAX TNTs. We are only lowering our 1998 EPS estimate by $0.02 to $1.23 to account for a slightly higher than expected share count and we are maintaining our 1999 EPS estimate of $1.65. [Their lowering the FY98 Estimate for share count - see below. They did not lower FY99.] We remain bullish on shares of ASND as we believe that the company is the best positioned in the industry to take advantage of what we expect to be strong demand from Internet service providers (ISPs) and carriers in 1998 [I like that statement.] (we are already beginning to see the strength). We reiterate our BUY recommendation on shares of ASND and our 12-month target price of $55. we are only adjusting our 1998 EPS projection to account for the higher than expected share count. We are actually making slightly more optimistic gross margin assumptions given that we now expect core switching products to be a higher percentage of sales, approaching the 48% mark by 4Q98 (core switching products carry better margins than remote access concentrators). We feel it is important to note that we believe our remote access concentrator revenue projections for 1998 are fairly conservative, growing only 2% over 1997 levels. We are maintaining our $1.65 EPS estimate for 1999. Ascend's CBX 500 and GX 550 switches are being very well received by the carrier community and should drive the company's sales in the coming quarters. Pricing pressure in the remote access concentrator space has leveled off a bit from last year's pricing wars. We expect some pricing pressure in 1998, although more equivalent to the 15% to 20% decline as opposed to the 40% plus decline that we saw last year. Ascend is or will soon be shipping several new products. [Wish they could let us which new products to expect.] The company just released the MAX 6000, a mid-range remote access concentrator, new voice over IP software, and is now shipping the Sahara ATM access concentrator products that were acquired in the Cascade acquisition. We also expect Ascend to begin shipping new high-density modem cards for its MAX TNT in the middle of the year (nearly doubling the modem capacity of the product) and to ship a new remote access concentrator hardware platform, the TNT2, later in the year.
