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

To: david jung who wrote (50266)	7/22/1998 4:05:00 PM
From: djane	Read Replies (6) \| Respond to of 61433

Ascend Attracts Interest (just in case the URL disappears...) techweb.com. Tuesday, July 21, 1998 The last 12 months have been very exciting for Ascend Communications [ASND], a leading developer and manufacturer of remote-access and high-speed WAN equipment for carriers, ISPs, and leading businesses. Its share price, which hit a 52-week low of $22 on Dec. 3, 1997, has risen to around $50. So, how does a company that offers niche networking and communications products -- scalable carrier-class frame relay, ATM, IP, and remote-access switches and access concentrators -- go from laggard to Wall Street darling so quickly? What's changed is not Ascend's fundamentals, but Wall Street's perceptions of the company. Given the stock market's short-term bias, many investors couldn't see beyond Cisco Systems' dominance in networking and its ability to take market share away from competitors. Investors expected competition in Ascend's markets to increase, and no one wanted to bet against Cisco president and CEO John Chambers. As Cisco continued to acquire new technologies, Ascend suffered some technical difficulties with its top-of-the-line Max TNT access concentrators, which handle higher call densities than remote access servers. At the same time, Wall Street was finding that network-equipment purchasing trends were becoming less predictable. Slippage of large orders by carriers and ISPs made forecasting earnings more difficult. Investors were also concerned because some Ascend executives were selling stock at $30. But perceptions began to shift early this year. Companies were developing intranets, remote-access capability, home pages, and e-business systems, which boosted demand for ATM-based WANs. Ascend's new products began generating stronger-than-expected sales, which helped alleviate investors' short-term concerns. Sales of frame relay switches are slowing, but that shortfall is more than offset by demand for new products, including Ascend's CBX500 and GX550 high-density wide area ATM switches for carriers, such as AT&T and WorldCom. Other new products include the MAX 6000 series, Ascend's high-end integrated voice/data servers, which integrate both voice and data on a single platform. The company has obviously benefited from its acquisition last year of frame relay maker Cascade Communications Ascend's international sales continue to increase. More than 33 percent of the company's revenue in the second quarter came from overseas. Weakness in Asia could affect revenue growth in the second half of the year. Japan represented almost 13 percent of second quarter sales, and the rest of Asia accounted for another 5 percent. However, slower sales in Asia might be offset by strength in Europe. Competition remains a concern. Cisco dominates networking with its broad-based product and service structure. Domestically, Lucent Technologies will be tough in the carrier market. Internationally, the major European carrier-equipment vendors, including Siemens AG and Alcatel Alsthom, are formidable. Rumors that Ascend may be the target of an acquisition have been rife this year. The convergence of voice and data networks makes the company attractive to major telecom-equipment makers such as Lucent and L.M. Ericsson. Given Lucent's high share price, I wouldn't be surprised if it made a bid by offering its own shares in exchange for Ascend's. Management has already suggested that earnings per share for 1998 and 1999 will be about $1.20 and $1.60 respectively, up nicely from $1.07 in 1997. I expect the continued strength of the company's product lines will result in higher revenue and earnings estimates by year's end. The stock is not cheap at 32 times 1999 earnings. But this a reminder to longer-term investors that they could have bought Ascend at much lower prices if they could have differentiated fact from fiction. Bay Isle Financial manages the InformationTech 100 Mutual Fund. Bill Schaff is the portfolio manager for the fund. For more information and a prospectus, go to Bayisle.com. All e-mail should be addressed to bschaff@bayisle.com. Other Market Mavens: Bill Schaff's Taking Stock Carl Johnson's Semiconductor Market Focus Tom Taulli's NetGain Russell Wayne's Contrarian Corner Stock Quotes Enter ticker symbol: Indices Dow 9134.83 -55.36 Nasdaq 1967.79 -11.35 S&P 500 1164.11 -0.96 Russell 2000 450.42 -5.72 PSE Tech 359.45 -6.37 Quotes 15-min. delayed Check for HTML text sample HTML sample