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

To: w2j2 who wrote (1378)	4/14/1998 3:14:00 PM
From: Dennis R. Duke	Read Replies (3) \| Respond to of 1629

A late posting from yesterday's Cowen report, which raised ASND to a "Buy" from a "Trading Buy". Leading comments were 1) ASND Beats Street Expectations Slightly and 2) Strong ATM Orders. Their report is as follows: Key Points: 1. ASND Reports Revenues Of $305.1MM, Up 4.3% Q/Q On Strong Remote Access Sales. 2. EPS Of $0.26 Beats Street Expectations Based On Increased Operating Margins Of 25.2%. 3. Remote Access Revenues Up 7.8% Q/Q, While Core Switching Up 1.1% Q/Q; But Orders For ATM And Frame Relay Switches Strong. 4. North American Sales Up 5.6% Q/Q, International sales Up Modestly Q/Q. 5. Recent Customer Wins Suggest Strong Momentum. 6. Raised To Buy From Trading Buy. Raising F99 Estimates To $1.50 And Twelve Month Target Price To $45. Thesis/Valuation: ASND is a dominant player in the Internet access concentrator market and it has a strong position in the ATM switch and frame relay markets. The company will be one of the most significant infrastructure suppliers for the explosion in spending on next generation carrier voice and data networks. While the access concentrator and frame relay switch markets appear poised to grow 10 to 20% annually, the ATM switch market is exploding and ASND's CBX500 and GX550 products are achieving significant deployments in carrier backbones. Recently, momentum is strong at ASND with the award of several large multi-year deals. We raise ASND shares to a Buy-2 from Trading Buy, with A $45 Target Price, based on 30x C99 EPS of $1.50. ASND Reports Strong Q1:F98 On Strong ATM And Remote Access Sales. ASND reported Q1:F98 revenues of $305.1MM, up 4.3% Q/Q and up 4.2% Y/Y. EPS of $0.26 on a fully diluted basis beat our and Street expectations of $0.25 mostly on stronger than expected operating margins as the company continues to make progress at reducing its sales and marketing expenses to just under 20% of revenues. Book to bill was above 1 in both North America and internationally, primarily on strength of ATM switch orders. Gross margins at 64.0% were flat from Q4:F97 levels and slightly better than the company's expectations as the pricing environment for remote access concentrators in Q1:F98 remained stable. Remote access revenues (includes MAX and TNT products) comprised 44.2% of the total and were up 7.8% Q/Q; core switch revenues (includes B-STDX 9000 frame relay, CBX 500 multiservice, the GX550 switch, the Broadband products and the GRF router) comprised 41.1% of the mix and were up 1.1% Q/Q on what is traditionally a seasonally weak quarter for carrier spending; enterprise access (includes Pipeline and Multiband products) comprised 9.9% of the mix and were up 7.6% Q/Q as the channels moved product aggressively; service revenues of $14.6MM comprised about 4.8% of the mix and were down 4.4% Q/Q. The new GX550 backbone ATM switch did not contribute to revenues in Q1:F98, but will contribute in Q2:F98 as carriers in North America and internationally continue to build high speed ATM backbones. Some GX550s were shipped in Q1, but none were taken into revenues. The company did not recognize any revenues from the Williams contract. ASND saw strong sales in North America as service providers and alternative carriers aggressively deployed their remote access solutions. North American sales represented 74.2% of the mix and were up 5.6% Q/Q, while international sales represented 25.8% of sales and were up 0.8% Q/Q. Both Europe and Asia/Pacific were down modestly in absolute terms from Q4:F97. Japan, which represented just 5% of the mix in Q4:F97, represented slightly under 10% of the mix in Q1:F98, mostly on strength of one large customer order. The company does not expect business prospects in Asia to improve until well into the second half of F98. Recent Customer Wins Suggest Strong Momentum At ASND. TNT To Be Upgraded Near Term. Recently, ASND was awarded a multi-year contract for ATM and frame relay switches to build GTE's backbone. This follows on the heels of similar multi-year wins at AT&T and Williams in the US and NTT in Japan. In the remote access market, ASND continues to be the primary supplier of remote access concentrators to WCOM/UUNet, PSINet and GTE/BBN in the US and Deutsche Telekom, France Telecom, Unisource and NTT internationally. In addition, ASND continues to penetrate the networks of CLECs in the US and competitive carriers in France, Germany and the Netherlands. The TNT remote access concentrator is to get higher density modem cards based on Rockwell's CSM-3 technology before the end of Q2, while a next generation TNT platform is likely to ship close to the end of C98. V.90 capable modems are to ship for general availability in May, 1998. DSOs Flat; Inventory Turns Up. DSOs at the end of Q1:F98 were 73 days, flat from Q4:F97 levels, while inventory turns improved to 4.3x from 4.2x at the end of Q4:F97. Inventories increased slightly as ASND shipped an increased number of evaluation units in the quarter. Upgraded To Buy From Trading Buy. Raising F99 Estimates To $1.50. Twelve Month Target Price Raised To $45. Based on the strong book-to-bill at the end of Q1:F98 and continued strong demand for core switching and remote access equipment, we have upgraded ASND to Buy-2 from a Trading Buy. Our overall revenue estimates for both Q2 and for C98 are little changed. With the increased prospective strength in the core switching business, we have raised our C98 core switching revenue estimates to $671MM from $631MM with a commensurate decline in our access concentrator forecast. For Q2, we have cut our access concentrator revenue from a 6% growth rate to a 3% decline, offering ample room for the price cuts in access concentrators that we may see this quarter. We have also raised F99 estimates to $1.50, +0.08, primarily based on improved ATM switch prospects. Our new target price is $45, which is based on 30x C99 EPS of $1.50. With continued improvements in product quality and new software features on the TNT such as voice/fax over IP shipping, ASND's business prospects keep getting better. With the GX550 core ATM switch, the CBX500 multiservice backbone switch, the company has several multi-year deals with carriers around the world. The business should continue to accelerate in H2:C98, as Europe gears up for continued telecom deregulation, Japan hopefully improves and service providers in Latin America begin to deploy ATM backbones. ------------- Sound to me like we are just getting rolling. IMHO, Dennis