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Technology Stocks : Xylan -- Ignore unavailable to you. Want to Upgrade?

To: drdan who wrote (2890)	10/15/1998 8:32:00 PM
From: pat mudge	Read Replies (1) \| Respond to of 4135

<<< Dow Jones Newswires -- October 15, 1998 Xylan Up 11% On Investors' Relief About 3Q Results Dow Jones Newswires By Joelle Tessler NEW YORK (Dow Jones)--Even though Xylan Corp. (XYLN) in the third quarter did not produce the double-digit sequential revenue growth that it promised earlier in the year, it came close enough to placate nervous investors. Xylan's shares, which tumbled in recent weeks on concerns that the networking company's third-quarter numbers would fall far short of expectations, were up Thursday on relief that the results were actually quite solid in an uncertain environment for the industry. Xylan late Wednesday reported earnings of 22 cents a diluted share on $91.13 million in revenue for the third quarter, up from 10 cents on $53.52 million a year earlier. Earnings were in line with Wall Street's consensus estimate, but revenue was up only 9% sequentially from $83.68 million in the second quarter. Xylan had promised at the start of the year that it would deliver double-digit sequential revenue growth in every quarter of 1998. Still, according to Nutmeg Securities analyst Andy Schopick, the stock appeared cheap to many investors Thursday after it was oversold in recent weeks on worries over troubles at Alcatel SA (ALA). Alcatel, one of Xylan's two key customers, warned last month that it wouldn't meet profit forecasts for the year. Xylan's shares have been hit in recent months by general concerns that the company was too dependent on original equipment manufacturer sales to Alcatel and International Business Machines Corp. (IBM), its other big customer. But Xylan reassured many by delivering on its promise to increase direct and value-added reseller sales, which helped offset decreased OEM sales in the latest quarter. While total OEM sales fell to $29.3 million in the third quarter from $34.2 million in the second quarter, direct and value-added reseller sales climbed to $62 million from $49.5 million. Xylan also helped calm jittery investors with comments that it expects to grow faster than the overall networking industry, which is growing about 24% to 25% annually. The company's stock closed at 13 1/4, up 1 5/16, or 11%, on Nasdaq volume of 2.3 million shares, compared with a daily average of 1.5 million. Despite the relief over Xylan's third-quarter numbers, Lazard Freres analyst Michael Duran believes the company does face some execution risks in the fourth quarter as it navigates a major product transition as well as the shift to more direct sales from OEM sales. On the product transition front, Xylan is starting to ship the Omni SR, which "all but makes obsolete" the company's flagship OmniSwitch, which contributed about 80% of revenue in the third quarter by Duran's estimates. Looking at Xylan's OEM relationships, Duran said he believes Alcatel's recent agreement to purchase Packet Engines Inc., a maker of gigabit Ethernet switches, changes its relationship with Xylan "from strategic to tactical and reduces its value." "While the product overlap between Packet Engines and Xylan is no greater than 50% today, we believe Alcatel intends to provide internal technology where possible to improve profitability," Duran said. For his part, however, Nutmeg's Schopick does not see Packet Engines as a major competitor to Xylan since Packet Engines has a high-end product that is used mostly at the core of a network, while many of Xylan's products have more of a focus on ATM technology and go at a network's edge. Xylan has said it does not expect Alcatel's purchase of Packet Engines to affect its own broad relationship with the telecommunications equipment company. - Joelle Tessler; 201-938-5285>>>>