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

To: Diamond Jim who wrote (56260)	10/20/1998 7:31:00 PM
From: H.A.M.	Read Replies (2) \| Respond to of 61433

Ascend Falls on Concern About Lending to Customers Alameda, California, Oct. 20 (Bloomberg) -- Ascend Communications Inc. shares fell 10 percent amid concern that the network-equipment maker won't be repaid some of the money it's lending customers to buy its products. Shares of the Alameda, California-based company fell 4 15/16 to 42 15/16 in trading of 25.2 million, making it the second-most active stock in U.S. markets. Ascend has begun extending credit to smaller local-phone companies to help them buy its equipment, a practice that has the potential to result in bad loans. The company took a third- quarter charge to write down the value of the loans and said it expects to book another charge in the fourth quarter. ''People are concerned that some of its customer base may be defaulting or that it's having to resort to new tactics to win contracts,'' said Christin Armacost, an analyst at Everen Securities Inc., who rates Ascend ''strong buy.'' Ascend yesterday third-quarter net income rose 65 percent to $66.1 million, or 32 cents a share, from $40.1 million, or 20 cents, a year earlier. While reactions to its results were positive, the company didn't initially say that it took an $8.7 million charge to guard against bad loans, instead explaining it to analysts on a conference call. ''People are skittish because they were caught by surprise,'' said Craig Johnson, an analyst at Pita Group in Portland, Oregon. The No. 5 maker of network equipment didn't say how big a charge it could take in the fourth quarter. Armacost predicted that it will be as high as 3 cents a share. The average per-share earnings estimate of analysts polled by First Call Corp. is 34 cents. Cautious Approach As it strives to find new customers, Ascend may have no other choice than to finance sales of its products to compete with the likes of Lucent Technologies Inc. and Northern Telecom Ltd., two much larger companies that frequently use loans to help win contracts for networking gear. ''It's a competitive weapon for these guys and they've been using it for a long time,'' said Tim Savageaux, an analyst at Volpe Whelan Brown & Co., who rates the stock ''buy.'' Ascend said it's being cautious about taking on credit risk by writing down the value of the loans and not recognizing any revenue from them until a customer pays back the full principal amount. The company also said it's getting into financing to match incentives from rival companies. ''We'll continue to do loans in those situations where competitors are offering the same things,'' said Chief Financial Officer Michael Ashby. The problem, said Savageaux, is that by writing down the entire value of its loans, Ascend may be creating the impression that it expects some customers to default on payments. Other companies aren't quite as conservative and book at least some revenue from their financed sales immediately. Ascend told analysts that it plans to find a partner to help provide financing for its customers next year. Takeover Speculation Shares of Ascend rose to a 52-week high of 55 1/16 on July 21 amid speculation that it and other smaller companies may be acquisition targets in a wave of consolidation in the telecommunications-equipment industry. Chief Executive Mory Ejabat, though, said today in an interview on the CNBC television network that Ascend hadn't received any offers. In fact, Ashby said yesterday that Ascend is looking to buy other networking companies and is ''very active right now'' in talks with possible targets. He declined to say which ones. Ascend has fought to rebuild its credibility after concerns arose last year about poor communication from executives regarding demand for Ascend's networking products. Shareholders sued the company and some executives for allegedly making positive statements while failing to disclose flaws in products that led to a drop in the share price. Yesterday, the company said its third-quarter sales rose 37 percent from a year earlier, though it said delaying a shipment to Japan caused the company's sales of its asynchronous transfer mode, or ATM, switches to fall from the second quarter. ''It's not what you wanted to see,'' Savageaux said. ''They've been winning contracts left and right.'' Ascend said it expects fourth-quarter ATM sales to be about 20 percent higher. Warburg Dillon Read LLC analyst Nikos Theodosopoulos today cut his rating on Ascend to ''hold'' from ''buy,'' citing a premium in the company's market valuation from takeover speculation. The stock also was downgraded to ''hold'' from ''buy'' at Nationsbanc Montgomery Securities LLC by analyst Alfred Tobia. 16:42:08 10/20/1998