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

To: Dennis R. Duke who wrote (1370)	4/13/1998 5:55:00 PM
From: Dennis R. Duke	Read Replies (1) \| Respond to of 1629

And now comes Merrill Lynch. Holding a Neutral with a long term Accumulate rating, which is what they downgraded to on August 28, 1997. This is still a nice report. They did up their estimate of the full years 1998 and 1999. Joe writes the following: Investment Highlights: o In the March quarter, revenues increased by 4% to $305 million and EPS were $0.26 versus $0.31, slightly above consensus EPS of $0.25. o Based on March quarter results, we are fine tuning our estimated 1998 EPS from $1.10-1.30 to $1.15-1.25. We are establishing a 1999 EPS estimate of $1.35-1.45. o We are maintaining our intermediate term rating of Neutral. Fundamental Highlights: o The book-to-bill ratio was greater than 1.0 in both domestic and international markets in the March quarter. o With the exception of a large order from Japan, business from the Asia/Pacific region was soft. The company does not expect business in the region to pick up until the second half of 1998. Highlights Of March Quarter Results Revenues On a year-over-year basis, revenues increased by 4% to $305.1 million. Revenues by distribution channel were 36% carriers, 41% Internet service providers, 23% resellers and end users. Revenues by product category were 44% access concentrators, 41% core switching, 10% enterprise, and 5% service and training. On a geographic basis, international markets accounted for 26% of total revenues, compared to 27% in the December 1997 quarter. Sequentially, revenues in Europe were $31 million (10% of sales) versus $41 million (14% of sales) and revenues in Japan were $30 million (10% of sales) versus $15 million (5% of sales). Operating Expenses Gross margins were 64.0% versus 65.0% and compared to 64.0% in the preceding quarter. SG&A expenses were 25.4% versus 21.3% and R&D expenses were 13.4% versus 11.8%. Operating margins were 25.2% versus 31.9%, and compared to 23.6% in the preceding quarter. EPS EPS were $0.26 [Good for Joe. He was in print at .26 in an industry forecast about a week before the earnings release] versus $0.31, slightly above consensus EPS of $0.25. Based on March quarter results, we are fine tuning our estimated 1998 EPS from $1.10-1.30 to $1.15-1.25. We are establishing a 1999 EPS estimate of $1.35-1.45. Balance Sheet As of March 31, 1998, cash and short-term investments were $605 million, an increase of $130 million from the preceding quarter. About half of the increase is attributable to operating cash flow, and the other half from option exercises and deferred tax payments. Accounts receivable were $243 million (72 days sales outstanding) and inventories were $103 million (inventory turn ratio of 4.3). The company's goal are for DSOs in the 70-75 range in 1998 and an inventory turnover ration of 5.5 in 1998. Business Trends 1) Book to Bill. The book-to-bill ratio was greater than 1.0 in the March quarter for both the U.S. and for international markets. 2) Revenue Growth. The company expects sequential revenue growth to accelerate through the rest of the year. 3) Access Switching increased by 8% sequentially, with strong performance in North America and from MAX TNT at large service providers. The company is starting to see demand for xDSL equipment. V.90 software upgrades are expected to start shipping in mid to late April, followed by general availability in May. 4) Core Systems revenue was up modestly on a sequential basis, but saw strong growth in orders for ATM and Frame Relay equipment. The company shipped the GX550 ATM switch during the quarter, but did not recognize revenue for it during the quarter. The company expects revenues for the GX550 to ramp in the June quarter. We expect revenues from the Core Systems business to increase to 50% of total business by the end of the year. 5) Enterprise Access revenues increased by 8% sequentially, and the company had continued success in the reseller channel. 6) Regional Business. The company's goal is to have international revenues account 30% of total revenues by the end of the year, and up to 40% of revenues beyond 1998. o North America. Business in North America was good, with the carrier market having the largest amount of activity. o Asia/Pacific. With the exception of a large order from Japan, the Asia/Pacific region was soft. The company does not expect business in the region to pick up until the second half of 1998. 7) Major customers. Ascend had only one customer that accounted for more than 10% of its revenues. 8) The GRF Switch. Revenues from the GRF were down slightly, off of a small revenue base. 9) Headcount. At the end of the March quarter, the company had approximately 1,969 employees, up from 1,842 at the end of the previous quarter. -------- So, for those that were leaving if ML upgrades, stick around, they didn't. Dennis

To: Dennis R. Duke who wrote (1370)	4/13/1998 6:27:00 PM
From: Dennis R. Duke	Read Replies (1) \| Respond to of 1629

In this continuing He said She said, Alex Brown said "No Surprises in 1Q Results" and continues to rate ASND as a "Market Performer". EPS estimates are CY EPS 1.06 1.16 1.49, respectively. Their write up is as follows: HIGHLIGHTS: -- EPS were $0.26 on revenue of $305 million -- Moderate sequential growth across all product segments -- Future emphasis on international and core business growth -- ASP impact of triple density modem boards is uncertain -- Fine-tuning estimates, Maintaining "Market Perform" investment rating DETAILS: 1Q EPS were $0.26 on revenue of $305 million - Ascend announced 1Q results that were in-line with our revenue estimate, and a penny better than our EPS estimate of $0.25. The Company squeezed the extra $0.01 by reducing expenses more substantially than expected. Sales and marketing expenditures were $70.8 million, or 22.1% of revenue versus 23.8% last quarter. Research and development was 13.4% of revenue versus 13.8% in 4Q. However, due to increased hiring plans, R&D expense is expected to be significantly higher in 2Q. [Interest one calls the extra penny coming from only R&D delays, and this one notices the Sales and Marketing to contribute to that penny over, too. CC told us S&M costs are planned to be coming down.] Revenue was up 4% both sequentially and year/year. Management had cautioned analysts last quarter regarding 1Q's seasonal weakness, and that modest growth expectations were warranted. As in 4Q, North America was the strongest geographic market, while international revenues were off modestly to 26% of total sales. Ascend noted uniform strength across all segments of its carrier and ISP customers, and the book-to-bill was greater than 1. We believe the Company's core products most positively impacted the strong bookings, with activity focused on the new GX 550 ATM switch. However, the GX 550 did not contribute to revenue 1Q. [huh, did not say "revenue was not recognized.] [Details of revenue mix as given in my CC summary deleted] Service revenue was the only category that was down sequentially. Access revenues were driven by growth in North America and success with the company's MAX TNT product. Management also noted increased interest in DSL products during the quarter. Somewhat surprising was the strong performance of the Company's enterprise access business. This is comprised largely of low-end routers for ISDN and frame relay access. However, Ascend's high-end GRF routers continue to struggle in the market, and were off for the third consecutive quarter. Ascend did not break out specific figures for frame relay and ATM revenues, but commented that frame relay grew sequentially. We believe ATM was likely down sequentially off a very strong 4Q. Despite this weakness, we continue to believe that ATM's market fundamentals are strong, and represent the best opportunity for sustained growth. Future emphasis on international and core business growth -- Going forward, the Company is focused on two areas for growth acceleration: international expansion and core product business. While international sales have declined steadily as a percentage of revenue, Ascend plans to invest substantially in this area. The Company's plan is for international sales to represent 30% of total revenues by year-end 1998, and 40% at an unspecified point in the future. In addition, Ascend has steadily derived a greater and greater portion of its revenue from Core products, which it gained largely through the Cascade acquisition. We expect core products to surpass 50% of revenues by year-end. We note, however, that ATM has driven growth in this area almost exclusively for the past year. We caution investors that an unexpected downturn in ATM sales, due to lumpy carrier purchasing or other unforeseen reason, would have a devastating effect, in our view. ASP impact of triple density modem boards is uncertain -- Price competition in the access space was severe throughout most of 1997. The pricing environment has stabilized over the past two quarters, with only nominal ASP declines. We believe the introduction of double-density modem boards last fall were a principal reason for a step function decrease in price points, which in-turn muted access revenue growth. Ascend is planning to introduce next-generation, triple-density boards during the summer. The Company believes that this will have little impact to the pricing environment. However, given the precedence of higher-density boards adverse affect on pricing, we are decidedly more cautious. Conclusion Ascend met street expectations for the second consecutive quarter, after a disappointment in 3Q 1997. The stock has traded up in recent weeks, in anticipation of a solid quarter. Ascend delivered the goods, albeit at comparatively lower expectations. The Company reiterated its comfort with 1998 revenues of $1.4 billion and EPS of $1.15. Accordingly, we have only adjusted our 1998 estimates for 1Q results. However, we have slightly reduced our 1999 estimates to reflect conservatism regarding renewed price competition and revenue growth expectations. Due to the rise in the Company's stock price, the shares are presently trading at 34x our $1.16 1998 EPS estimate, and 27x our $1.49 1999 EPS estimate. These multiples are at the high-end of the range for comparable companies. We believe the Company is fairly valued, given the risk stemming from its somewhat inconsistent financial performance and limited revenue visibility. Therefore, we are maintaining our "market perform" rating. --------- A bit more conservative and expressing concern over ATM and triple density modem boards, and believes fair valued at the current time. Dennis