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Ascend to move beyond setbacks

Ascend's CFO lays out the company's plan to stake its claim on the growth of public data networks.

    Hoping to move beyond a year of transition marked by financial turmoil, Ascend's (ASND) chief financial officer today laid out the company's plan to stake its claim on the growth of public data networks.

    But analysts and institutional investors attending Ascend's presentation at the NationsBanc Montgomery Securities 15th annual Technology Week conference remain somewhat skeptical about the company's prospects.

    Ascend certainly had its share of disappointments last year, as it faced product delays, a slowdown in sales, and pricing pressure, while watching its stock tank from the high-70s last January to around 20 at the end of 1997.

    The networking industry overall is struggling with market maturation, consolidation of ISP customers, Year 2000 issues, and economic turmoil in Asia, which could continue to keep near-term volatility high.

    Despite these events, and pricing pressure that may continue to haunt Ascend during the first half of the year, CFO Michael Ashby said the company will maintain its gross margins. He also pointed to several opportunities opening up for the company in the future.

    "We are only halfway up the [growth] curve with voice-over-fax and the Internet. Technology is driving toward public data networks. ISPs and carriers are migrating to ATM and SONET (synchronous optical network)-based backbone networks," Ashby said. "We see a new class of carriers emerging. Our strategy is to develop products and technologies for carriers and users of the public network."

    Ashby added that he expects higher subscriber-to-port ratios in Ascend's international markets going forward.

    "We see pressure in the U.S. Ratios are expected to decline over time, increasing port demand," he said. "The macro issue impacting network build-out in some regions has clearly affected us, specifically in Asia/Pacific."

    Japan had a significant impact on growth in Ascend's most recent quarterly results, even though the region accounted for just 5 percent of the company's revenue. That is down from the second and third quarter's contributions of 18 percent and 13 percent, respectively.

    Ashby pointed out that Ascend also is building momentum in ATM, or asynchronous transfer mode. "It is the backbone of choice for carriers and ISPs," he said, noting that the market is expected to show continued growth in 1998.

    Ascend also has high hopes that the benefits of its acquisition of Cascade Communications last March will soon start to materialize. The Cascade acquisition is at the center of Ascend's core systems group, and the company has said that it is poised to be a broad-based supplier of wide-area networking products as a result of it.

    Despite that prediction, one analyst that attended Ascend's presentation said she currently feels more comfortable with some other names in the networking sector. She noted, however, that Ascend's stock already has come off of its lows and is showing signs of improvement as well as improved visibility.

    Analysts are expecting profits of 25 cents a share for Ascend's March quarter, according to First Call.

    For the December quarter, the company managed to beat expectations by 2 cents a share, which it attributed to broad growth in North America, with particular strength coming from its large carrier and ISP customers, as well as from growth in sales of the Access product in Europe.

    Ascend posted quarterly net income of $47.6 million, or 24 cents per share, compared with earnings of $64.5 million, or 32 cents per share, during the same period last year. Revenue was $292.5 million, compared with $287.8 million reported for the same period during the previous year.