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Bay up on earnings hopes

The networker sees its stock jump after it announces its first-quarter revenues will likely surpass analysts' expectations.

Bay Networks (BAY) today saw its stock jump after it announced its first-quarter revenues will likely exceed analysts' expectations.

Shares of Bay rose as high as 37 in morning trading, up from yesterday's close of 34.

Bay's surge led today's rally in technology stocks.

"The networking sector has been sort of a bellwether for technology stocks for a while now," said Deutsche Morgan Grenfell analyst Noel Lindsay. "We've had some choppy waters in networking, so people may have viewed Bay's announcement as a sign that networking stocks are back, an indication that the fundamentals are improving and that investors can look at networking sector for continued leadership in the technology arena."

Lindsay also cited Dell's announcement (see related story) that it exceeded expectations for its second quarter as fueling the day's tech rally.

Bay closed at 37-1/8 today, up 3-1/8. The Nasdaq was up 31.19 to close at 1600.71.

The networking company, which has been fighting to bolster sluggish revenues, said its anticipated performance is based on bookings for the first seven weeks of the quarter.

Bay, however, cautioned that it actually records most of its first-quarter revenues in the last half of the quarter.

"We consider this favorable trend to be good evidence that the market is accepting our Adaptive Networking strategy to [speed up] existing networks," said Dave House, chairman, president and chief executive, in a statement.

One analyst at Deutsche Morgan Grenfell raised his recommendations and estimates for the company on Friday.

Noel Lindsay raised his revenue estimates for Bay to $596 million for the quarter, from $566 million. And his earnings estimates rose to profits of 19 cents a share, from 16 cents.

DMG also upped its recommendation to a "buy" from "accumulate." "We saw strong demand from the end-users and resellers," Lindsay said. "And based on them generating strong backlog, we thought the company would generate some continuing growth in backlog and strong revenue growth."

He added that the company's financial outlook is improving.

The company, excluding two one-time charges for acquisitions, beat Wall Street's earnings estimates in the fourth quarter.

Bay reported a net loss of $118 million on revenues of $543 million. But without the acquisition charges, the company would have posted a profit of $30.5 million.

The networking company, which had logged three consecutive quarters of declining revenues, managed to turn things around in the fourth quarter.

"Things are getting better," Lindsay said. "They have been doing a good job at managing their operating expenses. And also they've come out with good products and competitive prices."