Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: The Phoenix who wrote (59629)	1/30/1999 2:35:00 PM
From: H.A.M.	Read Replies (1) \| Respond to of 61433

Lucent Ascends In Market -- As expected, Lucent has made a bid for Ascend-but what are the implications of the deal? InformationWeek February 01, 1999, Issue: 719 Section: Behind The News William Schaff In my July 20 column last year, I wrote that given Lucent Technologies' (LU-NYSE) high share price, I wouldn't be surprised if it made a bid for Ascend Communications (ASND-Nasdaq) by offering its own shares in exchange for Ascend's. That's exactly what Lucent did earlier this month. But there's a lot of confusion about the deal's implications. Does it mean that growth in telecom infrastructure equipment sales may have peaked? Will the advent of voice-over-IP and the evolution of high-end routers eventually make higher-cost switching equipment obsolete? Does the explosive growth of the Internet and eventual demand for access equipment make Lucent's high-priced bid look cheap? First, let's look at whether Lucent is paying too much for Ascend. The deal was valued at $20 billion, based on the price of Lucent shares the day the acquisition was announced. But Lucent is paying for Ascend with its own highly valued common stock, so it is, to some extent, like paying for assets with devalued Brazilian currency instead of dollars. Does the merger imply that Lucent's growth prospects have diminished and that it is buying Ascend to keep its top and bottom lines growing? Ascend's revenue is just $1.5 billion, compared with Lucent's $30 billion, so the merger won't have a major impact on top-line revenue. Network systems represented almost 66% of Lucent's sales, or $6.12 billion, for the quarter ended Dec. 31. But revenue from this business grew only 2.9% year on year. Demand in the U.S. market, which represents most of Lucent's business, is slowing. Revenue from international sales is growing faster, but is being offset by slowing equipment sales to personal communications services wireless carriers. Lucent's second-largest division, business communications systems, generated quarterly revenue of $1.98 billion, up 2.3% year over year. Some of the weakness can be attributed to seasonality. Domestic sales represent 82% of the division's revenue. Microelectronics revenue in the last quarter was $821 million, up 5.9%. One of the biggest issues facing Lucent over the long term is the evolution of voice-over-IP. Convergence of voice and data will happen-the only question is when. The quality-of-service gap between switches and routers is narrowing, making the significant difference in cost a bigger issue. Who wants to pay upward of $5 million for a switch when a $500,000 router can do the job? This will put pressure on prices of Lucent's switching equipment. (For more on the convergence of voice and data, see story on page 18.) Overall, Lucent is financially sound. It earned $1.72 per share for fiscal 1998. Earnings estimates for fiscal 1999 are $2.35 per share. Gross margins were at 52.3% in the latest quarter, up from 48.2% in the year-ago period. This was partly attributable to sales of software, which carries higher margins. As a result, Lucent's operating profit margin rose to 23% from 20.9% last year, but it would have been even higher if sales, general, and administrative expenses hadn't increased to 19.3% of sales, from 17.8% last year. International sales represent about 42% of total sales. The company spends about 10% of sales on research and development. Management projects revenue will increase by 30% year over year in the second quarter of fiscal 1999 and 20% for the year. There's no question Lucent made a good acquisition. Ascend's product line adds strategic value going forward, letting Lucent address the convergence of voice and data in the enterprise. It also gives Lucent direct access to the business market. Lucent was difficult to dislike even without Ascend because of its dominant market position. But investing in Lucent doesn't come without considerable risk given that, at its price of 112 last week, it was trading at 49 times projected 1999 earnings. But at least you don't have to pray for profits, like you do with some other technology stocks. -William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 Stock Index. You can reach him at bschaff@bayisle.com.

To: The Phoenix who wrote (59629)	1/30/1999 5:26:00 PM
From: Jorj X Mckie	Read Replies (1) \| Respond to of 61433

OG, I am in your camp regarding the Y2K meltdown being little more than an inconvenience. And I do agree that the market may take a hit prior to 12/31/99. However, I believe that many techs (networkers included) will not get hit fundamentally. What I am seeing is that many organizations, commercial and non-commercial are using the Y2K issues as a reason to forklift upgrade their infrastructure. If I were to make a list of reasons why the customers that I have been involved with are buying networking equipment this year, Y2K would be at the top. Of course my sampling would not be statistically meaningful and it may just be an excuse to get the latest wizbang stuff, but it is my belief that LU/ASND and CSCO will both benefit on the bottom line because of Y2K fears. JXM

To: The Phoenix who wrote (59629)	1/31/1999 4:18:00 PM
From: Mighty Mizzou	Read Replies (2) \| Respond to of 61433

I agree with your forecast. However, I look at dips as buying opportunities and not a negative for my holdings. We are in a technological revolution that will make the Industrial Revolution look like peanuts. Very exciting times indeed. That is why my confidence in Lucent is so strong now that they have acquired ASND. Lucent now has the ultimate end-to-end solution for any networking requirement, from PBX's and core switches all the way to the telephone itself. And is practically the sole provider for the world's oldest and largest telephone network. Sure, other vendors may have similar or better offerings in various categories but overall, including service, Lucent is now complete and ready to make or break. I dont see Bell Labs failing. GO ASND!!!!!!!!!