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

To: Mark Duper who wrote (56020)	10/19/1998 11:04:00 AM
From: gbh	Read Replies (1) \| Respond to of 61433

Top Stories: Assessing Ascend's Aspirations By Kevin Petrie Staff Reporter 10/19/98 10:33 AM ET Ascend (ASND:Nasdaq) might be the only networker that Cisco (CSCO:Nasdaq) envies. While corporate America buys Cisco's network plumbing to connect desktop PCs and servers, Ascend wins more lucrative contracts with telephone carriers such as Bell Atlantic (BEL:NYSE). And in the connectivity game, carriers represent the main engine of networking growth. For one, they are busily erecting the infrastructure to feed customers' insatiable hunger for the Internet. This is where the competition between the two companies could heat up. Cisco is making its own progress: it recently landed a deal to build such a system for Sprint (FON:NYSE). After the close of market today, Ascend reports earnings; in two weeks Cisco takes its turn. Wall Street expects Ascend to show a profit of about $61 million, or 31 cents per share, for the third quarter ended Sept. 30, a 55% increase on the $40 million it earned a year ago, when it botched a product upgrade. Several Wall Street pros say the company might even have topped strong expectations this time around. "I don't have any great fears" with Ascend, says analyst Ed Zabitsky with ACI Research, a Toronto-based adviser to mutual funds. There are three key questions: the health of its top-notch switching business with carriers, the health of its old remote-access product line, and, of course, its prospects for being acquired. Look for cheering answers on the first two points and silence on the third. First, the switches. Ascend makes about half its revenue -- and counting -- by building large switches that carriers use to pump computer digits through the heart of networks. This revenue stream is likely to grow 18% this quarter from the prior quarter, Zabitsky estimates, while the overall market for frame relay and asynchronous transfer mode products, the latest in high-volume high-speed swtiches, is expanding like gangbusters. Ascend is now back on track after its June 1997 takeover of Cascade, which supplies frame relay and ATM. Second, the remote access line. Cascade's strength helps Ascend compensate for the more modest performance of its other side: making so-called remote access products that link workers and Internet surfers to networks. Zabitsky estimates that Ascend grew sales of these products less than 5% in the third quarter from the second quarter. That's a nice uptick, but this area lacks the razzle-dazzle of large switches. And competitors such as 3Com (COMS:Nasdaq) are giving Ascend a run for its money in the remote-access business. Ascend shares, which traded recently at 47, are up one-third since Oct. 6 and have outpaced recent gains by other network builders and the Nasdaq. At 47 times profits over the last four quarters, and eight times revenue, Ascend still looks cheaper than Cisco, which is trading at 66 times profits and 10 times revenue, and Ascend's $9.3 billion market cap is dwarfed by Cisco's $86 billion market value. Ascend's enviable seat in networking makes it the subject of rampant takeover speculation. Recently Northern Telecom (NT:NYSE) acquired Bay Networks to spread from phone systems into data networks. Nortel's nemesis, Lucent (LU:NYSE), would benefit by snapping up the likes of Ascend, although many experts believe Ascend CEO Mory Ejabat didn't repair his company in the last year just to sell it. "The only question is, will Mory sell out?" Zabitsky says. "I don't think so. I think he has all the pieces he needs to compete." At the right price, anything is possible. In the meantime Ascend has a chance to make shareholders giddy with its earnings.