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Bay beats odds, breaks even

Bay Networks pulls in a third-quarter profit that beats expectations and should help it recover from rocky financial times.

Bay Networks (BAY) pulled in a third-quarter profit today that beat Wall Street's expectations, a development that should help the company recover from rocky financial times.

The networking company reported a profit of $255,000 for the quarter ending March 31, compared with earnings of $29.2 million or 15 cents a share a year ago. But excluding restructuring charges, Bay would have reported profits of $20.7 million, or 10 cents a share, from ongoing operations.

Analysts had expected the company to post earnings of 8 cents per share, according to First Call. The first-quarter profits are a shift from the $172.9 million loss the company reported in the previous quarter.

Revenues reached $512.9 million in the three-month period, down from $521.7 million a year ago and down from $514.5 million in the previous quarter.

Bay attributed the revenue shortfall to seasonal slowness and noted that its fundamental sales strength had improved, as had its marketing and development. The company also saw an increase in its switching and remote access business as more companies moved to these technologies to take advantage of the Internet and intranets.

Analysts had remained guarded on the company's performance. "If they could announce good numbers that are real numbers, that could be a nice step up for them," said Craig Johnson, principal analyst for market watcher Current Analysis.

Networking companies have sometimes been guilty of loading certain quarters with orders so that they can post financial results that have been previously leaked to Wall Street analysts. If Bay Networks can show a true profit, however small, the Street may take it as a sign that a turnaround has begun. "Everyone is pretty much writing them off," Johnson noted.

The nearly $2 billion networking equipment company has weathered a litany of bad news. After it posted a series of declining quarterly earnings, the bottom fell out in the first quarter of this fiscal year when the company posted a meager $5.6 million profit, excluding charges related to a small acquisition.

That debacle, in October 1996, resulted in the departure of CEO Andy Ludwick, one of the founders of the company, and led to a stock free-fall that has brought a former Wall Street high-flier back down to earth.

David House, a former Intel executive, was brought in soon after Ludwick's exit to buoy the sinking Bay ship, something that has yet to happen. Second-quarter results released in January continued the string of financial woes as the company reported a loss of 90 cents per share after charges related to a series of acquisitions.

But the company is expected to have a coming-out party under its new leadership next month at the Spring Networld+Interop '97 conference and trade show in Las Vegas. Products have continued to roll out from the company, including Bay's well-regarded entrant into the IP switching sweepstakes.

Still, there has been no overall statement of direction from the company. That is expected to change at Interop, as Bay pursues a high profile.

Analysts have been critical of Bay Networks at every turn since the merger of Synoptics of Santa Clara, California, and Wellfleet Communications of Billerica, Massachusetts, in 1994. The firms joined forces as Bay Networks to offer a compelling alternative to the likes of Cisco Systems.

But analysts have said the corporate cultures of the two companies clashed, resulting in miscommunication and infighting at a time of huge growth in the networking market.