Bay misses revised estimates

Even after lowering expectations last month, Bay Networks announced third-quarter results that came in well below revised estimates.

The networking company posted net income of $9.9 million, or 4 cents a share, compared with net income of $20.7 million or 10 cents a share for the same period a year ago.

Yesterday's earnings fell below revised consensus estimates of 12 cents a share, according to First Call. Shares were down another 1-1/2 to 22-1/2 in early morning trading today.

The numbers exclude a third-quarter charge of $154 million, related to Bay's acquisitions of New Oak Communications and Netsation. Including those charges, Bay posted a loss of $144.2 million, or 66 cents per share, for the quarter.

Revenues for the quarter were up 6.7 percent over the previous year, coming in at $547.2 million, compared with sales of $512.9 million reported for the same period last year.

Bay warned that it would fall short of analysts' expectations for its 1998 third quarter in March. Executives at Bay attributed the slowdown, in part, to technology confusion among customers who purchase networking equipment.

Bay's poor performance follows similarly weak quarters for 3Com and Cabletron Systems, Ascend Communications, and Cisco Systems.

Analysts continue to point to a variety of market dynamics that could lead to decreased profits for what once was essentially an industry segment with a license to print money.

Bay has been reaping the benefits of a renaissance under chief executive David House, who came to the company in late fall of 1996 after a successful tenure as a high-ranking executive at microchip powerhouse Intel. The latest earnings announcement represents the first misstep since House revitalized the firm.

"House cleaned up the mess and has done very well, but that challenge is after he's cleaned up the mess he now has to try and grow the company," said Craig Johnson, an independent consultant with the PITA Group. "They have serious challenges in the spaces they play in."

Bay has said previously that it expected growth from a new line of high-end switches, called Accelar, but adoption of the technology has been slower than expected.

"Looking forward, we expect to achieve sequential growth in revenue from the March quarter during the June quarter," House said in a statement. "We are confident that the revenue contribution from the Accelar product family will increase significantly, because we will be shipping new models and have greater availability of the product line."