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Cascade catches Big Blue flu

Cascade Communications' stock falls 36 percent despite the fact that the company's financial results met Wall Street estimates.

Cascade Communications (CSCC) stock plummeted 36 percent to close at 41 a share, down 23-1/8 from yesterday, as the company fell victim to what could be termed the "IBM syndrome."

Cascade in fact reported a very strong quarter yesterday, completely in line with analysts' expectations. But the stock fell more than 20 points to 41-3/4 in heavy trading this morning on fears that the company won't be able to sustain its current rate of growth in future.

This is the same thing that happened to IBM on Tuesday, when Big Blue beat estimates for the quarter but got hammered on Wall Street the morning after when its stock lost nearly ten points.

Cascade has continually shown Wall Street some of the best growth numbers in the networking industry, but, as with IBM, the financial community may feel that the company's run may be near a close.

For its fourth quarter, Cascade reported revenue of $110.3 million, a 140 percent increase over the same period a year ago. The company also reported a 139 percent increase in net income, to $23.4 million. Earnings per share were 24 cents, slightly above a consensus estimate from First Call of 23 cents for the quarter.

For the year, the company reported revenue of $341 million, up from $134.8 million for 1995. Earnings also blew away the previous year, coming in at $70.8 million for the year compared to $25.4 million for 1995.

Cascade is focused on the telecommunications carrier market, specializing in frame relay, asynchronous transfer mode, Internet Protocol, and remote-access hardware and software. The company has seen an explosion of growth for its products as the Internet service provider market segment has expanded.

Despite its strong positioning in a market that shows little sign of slowing down in the near future, analysts are skittish about the company's next quarter.

Even chip giant Intel (INTC) was met by a similar skepticism after its recently announced fourth quarter earnings. Despite beating Wall Street by a wide margin, Intel saw its shares fall by as much as five points the day after it reported and at least one analyst cut its rating for the company in anticipation of a slower first quarter.

Microsoft (MSFT) shares on the other hand leapt nearly 5 percent the day after its recently reported second-quarter earnings. Like Intel, Microsoft had exceeded earnings but went a step farther to issue a strong warning that its growth might start slowing this summer. Yet in Microsoft's case, analysts didn't seem to care and the stock popped up.