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

To: Sector Investor who wrote (1374)	4/13/1998 8:04:00 PM
From: Sector Investor	Respond to of 1629

Synopsis from Everen: ASND: Ascend turnaround fully in place Ascend turnaround fully in place, reiterate 1-1 and raising targets to $48 and $51 Summary and Opinion Ascend Communications reported solid Q1 results after the close of market on Thursday. Company achieved consensus revenue estimates and exceeded Street earnings expectations by one cent. The company continues to build momentum by focusing on the lucrative carrier market and delivering its next generation products. We believe key wins at AT&T and GTE exemplify the fact that Ascend's market share is not in jeopardy and, in fact, they are in a position to regain share. We are reiterating our 1-1 rating and raising our target prices to $48 and $51 with increased confidence that Ascend's momentum can continue. * Remote access revenue grew 7.8%, accounting for 44% of the total, reversing a three-quarter decline. * The core switching revenue (41% of the total) grew 1.1%, below our expectations, however orders grew over 20% pending the release of the GX 550, next-generation ATM switch. * Price pressure in remote access market appears to have subsided, evidenced by stable gross margins of 64%, and no pricing action taken in the quarter. * Ascend appears to be maintaining, and gaining, market share evidenced by two recent key wins in Cisco Systems' accounts - GTE and AT&T. Ascend reported revenue of $305.1 million, up 4.3% sequentially and 2.1% year-over-year. Gross margins of 64% were unchanged versus last quarter and down 174 basis point from Q1 1997. The company's cost reduction efforts resulted in flat operating expenses on an absolute basis and sequential expansion of its operating margin by 160 basis points to 25.2%. EPS of $0.26 were $0.01 above our estimate and the Street's. Its book to bill ratio was above one. Geographically, North America grew 5.6%, accounting for 74% of total revenue, and international revenue grew only 0.8%. While Japan increased to about 10% of the total, it was due to a large shipment to one customer. We expect continued economic weakness in Japan to drive its percent of revenue back into the mid-single digits. Europe was down for the quarter, falling to 10% of the total from last quarter's 14%. This appears to be seasonally- driven. On the balance sheet, cash grew by $114.8 million to $691.4 million. Days sales outstanding (DSOs) was flat sequentially at 72 days. While this is higher than historic rates, the company is offering longer payment terms in lieu of greater discounts on selling prices. [This is a positive] Therefore, we expect DSOs to remain at approximately the same level. Inventory turns are running below historical levels at about 4.3 turns. With several new product releases planned, the company has been shipping a greater number of demo models which is accounted for in finished goods, thus lowering turns. We expect turns to increase going forward. Finally, its current ratio remains at a healthy 4.3 and the company remains debt-free. Access concentrators accounted for 44% of total revenue and grew 7.8% sequentially, reversing a three-quarter trend. Price pressure in this highly competitive market remains surprisingly benign, aiding its gross margin stability. However, with a new higher-density modem card expected to ship in mid-summer, Ascend appears prepared to match prices if the market were to change. [It's nice to have this flexibility!] The core switching market accounted for 41% of the total and grew 1.1%. This was below our 9% estimate.However, it appears that the pending release of the GX 550 ATM switch may have delayed purchases. We continue to believe that this is Ascend's fastest- growing segment and will likely account for greater than 50% of its revenue by year's end. Ascend's low-end Pipeline and Multiband products accounted for 10% of the total and grew nearly 8%. Although the company continues to support this segment, we do not view this as strategic to Ascend's business. We are increasing our Q2 EPS estimate by $0.01, bringing total 1998 EPS to $1.18, and no changes to 1999 EPS estimates. The increase is driven by first quarter's performance and a faster-than-expected reduction in operating expenses. We are decreasing our 1998 revenue slightly, by 1.3%, to adjust for the shift in the ramp of the core switching revenue. We believe this shift is immaterial to our investment thesis. We believe Ascend's turnaround is fully in place and is evidenced by both meeting consensus estimates and winning key customers. AT&T and GTE are two of Cisco Systems' highly visible accounts, and we view their announcements of using Ascend products as validation of Ascend's product quality and ability to retain market share. [Nice!] With turmoil in the networking industry continuing, we view Ascend's strategy of targeting the public carrier market and avoiding the very price competitive corporate space as the correct one. We believe Ascend's early entrance into the carrier market has given them a competitive advantage because barriers to entry in this market are greater. With Ascend successfully addressing many of the product issues they had in 1997, they appear poised to re-accelerate growth. Based on our continuing confidence in Ascend's outlook we are reiterating our 1-1 rating and are increasing target prices to $48 and $51. This is based on an increase in our relative earnings premium to the S&P 500 Index to 41% from 35%. Our index average of the six largest vendors is currently at a 6% premium to 1999 estimates. Given that nearly every other major networking vendor continues miss consensus estimates, we view Ascend as the exception. [It's nice that they see this!] We reiterate our 1-1.

To: Sector Investor who wrote (1374)	4/13/1998 8:16:00 PM
From: Sector Investor	Respond to of 1629

Synopsis from Goldman Sachs: * Ascend's Q1 results point to a stronger fundamental outlook and much better execution. Our EPS ests. remain $1.20 for '98 and $1.45 for '99. While we are not changing ests., our confidence level and the potential for some upside is higher for three reasons: 1)Rev. and order growth is more broad based; 2) Company has won significant new switching business and additional wins at newer carriers are likely 3)New products could result in better growth. P/E could expand to 30+ times '99 ests. implying a price in mid to high 40s. * Q1 results were ahead of published expectations but some upside had been anticipated by investors. [Whispers again] Revenues of $305 million were up 4.3% sequentially and above our $300 million estimate. EPS of $0.26 was above our $0.25 estimate and consensus. Book to bill was above one. * Core switching revenues were up 1.1% sequentially to $125 million. We estimate ATM revenue of $44 million up slightly from last quarter. Company did not recognize GX-550 revenue which we estimate could have contributed an additional $5-7 million. Frame relay was also grew a bit to about $77 million, and the GRF router declined to about $4 million, we estimate. Backlog in core switching is strong from new contracts and additional wins are likely, we believe. GX 550 revenues should begin contributing meaningfully to overall sales starting in the second quarter. Average selling prices for the GX 550 are expected to initially be about $250,000, increasing to about $500,000 as more high-speed interfaces ship. Overall orders for ATM were strong, with demand for both the GX 550 and CBX 500. For example, on Thursday, the company announced a contract with GTE Internetworking to initially supply 24 GX 550, CBX 500 and B-STDX 9000 frame relay switches. This is in addition to a previously announced contract with Williams Communications for core and edge ATM equipment. Qwest and Level 3 Communications could be potential customers, as well. * Access switching revenues were about $135 million, up 8% sequentially from a weak Q4 and down 23% from a year ago. Pricing has stabilized for now and the company expects only modest declines in the near-term. We continue to expect at least 20%+ price reductions in the second half of 1998 as Lucent and Nortel become more aggressive. Higher density modems are scheduled for mid-year and the next generation TNT should be out towards the end of the year.

To: Sector Investor who wrote (1374)	4/13/1998 8:30:00 PM
From: Sector Investor	Read Replies (1) \| Respond to of 1629

Synopsis of report by STEPHEN G. KOFFLER: Beats Numbers by a Penny Ascend reported EPS of $0.26 on $305 million in revenue. This was one penny above both DLJ's estimate and First Call consensus. Revenue was in line with our expectations. The EPS favorability resulted from better gross margins and operating expenses The reported EPS was not much of a surprise, in fact the "Street" viewed the quarter as pretty much "in the bag." The only question was the composition of revenue. On this front, the company gets both good and bad marks. Core switching (Cascade) grew only by 1.1% sequentially. This was attributed to the company not recognizing revenue from the GX 550 ATM switch. This should be viewed as a positive, since the company made its revenue number without its high flying new product. Remote access, the Ascend part of Ascend/Cascade, had declined sequentially for three quarters. This part of the business grew 8% sequentially, basically regaining the ground lost in Q497. However, part of the recovery was attributed to one large order in Japan. This type of an order cannot be expected to recur and it points to a weaker Japan than if the numbers are taken at face value.