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   Technology StocksEarnings: Networkers & Communications

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To: 2MAR$ who started this subject1/24/2004 6:14:22 PM
From: 2MAR$
   of 12
AT&T $22~$19.75 spoils the party , reports 2004 Capex Spending Cut $900mil (26%)

By Scott Moritz Senior Writer
01/22/2004 02:53 PM EST
Click here for more stories by Scott Moritz

Merger mania aside, the early season earnings reports aren't boding well for the telecom group.
The telecom news cycle has been dominated in the young year by two themes: First, there's the prospect of consolidation, in the form of ongoing Cingular-AT&T Wireless (AWE:NYSE - commentary - research) merger rumors. And second, there's talk of an industrywide network-spending increase, which in part explains the massive run-up in network-equipment stocks.

But if the first thesis remained intact Thursday, the second came under serious fire as investors took a look at the outlooks for the big telecom service providers.

Top business communications and long distance provider AT&T (T:NYSE - commentary - research) posted weaker-than-expected fourth-quarter results, dropping its 2004 outlook below expectations under strain of intense competition. The grim view caused credit rater Fitch to downgrade its debt to its lowest investment grade.

More bad news at erosion-prone AT&T is hardly a surprise. The development that could come to rattle tech investors, however, is how AT&T plans to share its pain: The company cut 2004 capital spending by $900 million, or 26% from 2003 levels. That could hamstring 2004's young but powerful telecom-equipment rally.

Other big spenders such as Verizon (VZ:NYSE - commentary - research) and SBC (SBC:NYSE - commentary - research) have nudged their network spending plans higher, helping to ignite the early January networking surge. Even so, the size and swiftness of AT&T's cut clearly undermines the bullish thesis on these stocks.

Wall Street reacted quickly Thursday, sending networking gearmakers Lucent (LU:NYSE - commentary - research), Nortel (NT:NYSE - commentary - research) and Tellabs (TLAB:Nasdaq - commentary - research) down 8%, 5% and 9%, respectively.

On the wireless side, courting players AT&T Wireless and Cingular both reported a surge in customer acquisition costs as they fought to keep their subscriber ranks from shrinking. AT&T Wireless narrowly made the cut: Though more than 2.3 million people joined its rolls during the latest period, some 2.2 million users fled. Thanks to heavy advertising and 50% boosts to sales commissions, the nation's poorest rated cell-phone service ended up posting a net gain of 128,000 subscribers.

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To: 2MAR$ who wrote (5)1/24/2004 6:17:47 PM
From: 2MAR$
   of 12
LU $5~$4 ...Loses Steam on Fragile Forecast

By Scott Moritz Senior Writer
01/21/2004 01:42 PM EST
Click here for more stories by Scott Moritz

Like the rest of us, Lucent (LU:NYSE - commentary - research) has heard a lot of telecom-spending recovery talk. But the company was candid Wednesday in saying it hasn't seen much actual evidence of rising demand.
Shares of the New Jersey telecom equipment maker fell 27 cents, or 5%, to $4.48 after the company reported weak fiscal first-quarter results across all businesses except its wireless unit. Lucent also warned that there would be ups and downs during the coming year, with total sales likely to be flat to slightly up from 2003 levels.

Investors wanted more. The lack of dazzle from Lucent comes just a day after Motorola (MOT:NYSE - commentary - research) turned in limp cell phone performance Tuesday. The combined mediocrity helped trigger a tech selloff as Wall Street cashed in some of its recent gains. Lucent itself was up more than 60% going into Wednesday's report.

There's always a bit of sell-the-news mentality when a stock has run up that much, and to some observers Lucent's estimate-beating first quarter was reason for continued optimism. But for some bears, Lucent's inability to see the much-promised return of spending only reinforced suspicions that tech investors may have let expectations run too far ahead of actual business conditions.

"There's been a lot of hype in the market, but tech has been notorious for anticipating positive things that never materialize," says David Sanchez of Sanchez Global Advisors, a Beverly Hills investment shop that has no tech positions.

Sanchez is one of a number of hardcore skeptics who say that the so-called economic recovery lacks a solid foundation. These people say the current updraft could peter out as early as the presidential election in November.

"We simply have low interest rates that encourage speculation and consumer spending," says Sanchez.

And consumers don't seem to be buying many old-line phone switches. Nor, for that matter, do the telcos. Lucent posted miserable results -- an 8% sequential sales decline -- for its conventional phone gear unit, in what investors and analysts had expected to be the year's strongest quarter.

And though wireless infrastructure sales were remarkably strong, investors took little confidence that Lucent could repeat that performance. Lucent's top line was boosted by $150 million thanks to payment of a previously uncollected bill for wireless gear. In fact, for the first Lucent indicated that the customer was from India -- it's widely believed to be wireless telco Reliance --and that the bulk of the revenue from that arrangement was now accounted for.

For the period ended Dec. 31, 2003, Lucent posted a profit of $338 million, or 7 cents a share, on revenue of $2.26 billion. A year ago the company lost $389 million, or 11 cents a share, on revenue of $2.08 billion. The latest period included income tax benefits and a gain on the sale of an investment, partially offset by the negative impact of a charge associated with the revaluation of warrants that are expected to be issued as part of Lucent's global settlement of shareowner litigation and business restructuring charges.

Excluding the one-time items, the latest-quarter profit was 3 cents a share. That still compared favorably with the Thomson First Call consensus estimate, which called for a penny-a-share loss on revenue of $2.14 billion.

But for a investing crowd chasing the promise of explosive growth, Lucent wasn't of much help.

"There's a lot of money sloshing around looking for potential returns and 'easy' opportunities," says Eric Von der Porten with Leeward Investments, a San Carlos, Calif., hedge fund.

"I think there should be a correction, but people including me have been saying that for six months or more," says Von der Porten, who is a value investor with some a few short positions in tech but not in Lucent.

Big bear Sanchez is also looking for a correction -- but of a more fundamental nature.

"Consumers aren't earning higher wages, we are not adding more jobs and too many people are living off credit card debts and mortgage refinancings," he frets. Until those major economic issues are fixed, we won't see a true recovery, says Sanchez

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To: 2MAR$ who started this subject1/29/2004 5:33:17 PM
From: 2MAR$
   of 12
FDRY ($31~$23) Shares Fall Sharply on Shaky Forecast
Thursday January 29, 1:36 pm ET
By Gretchen L. Wilson

NEW YORK -- Foundry Networks Inc. (NasdaqNM:FDRY - News)'s shares fell sharply Thursday after the maker of switches and routers for computer networks portended a more competitive 2004 and alluded to shaky demand from its largest customer.

The stock fell despite stronger-than-expected fourth-quarter earnings. On late Wednesday, the San Jose, Calif.-based company reported fourth-quarter net income of $24.1 million, or 17 cents a share, up from $10.5 million, or eight cents a share, a year earlier, and a penny a share above analysts' mean estimate.

But in the company's subsequent earnings conference call, Foundry Networks said many competitors in the industry are desperately seeking market share by introducing new product lines and dramatically lowering prices.

"It's well-known that there are very few healthy LAN switching companies, and we are just cautious that we are seeing some of our competitors do desperate acts," Foundry Chief Executive Bobby Johnson said, according to a transcript provided by CCBN StreetEvents. Mr. Johnson noted that some struggling competitors in the industry "have nothing to lose."

According to Foundry's most recent annual report filed with the Securities and Exchange Commission (News - Websites) , the company's most significant competitor remains sector leader Cisco Systems Inc. (NasdaqNM:CSCO - News) .

Other competitors include Extreme Networks Inc. (NasdaqNM:EXTR - News) , Juniper Networks Inc. (NasdaqNM:JNPR - News; JNPR), Riverstone Networks Inc. (Other OTC:RSTN.PK - News) , Nortel Networks Corp. (NYSE:NT - News) and Enterasys Networks Inc. (NYSE:ETS - News) .

At about 1:20 p.m. EST, shares of Foundry Networks were down $7.96, or 25%, at $23.62 on the Nasdaq Stock Market (News - Websites) .

In the conference call, Mr. Johnson said the company seeks to broaden its customer base and decrease its reliance on its largest customer, the U.S. government, which accounted for 32% of the company's sales in the latest quarter.

"While we are targeting this vertical market for additional revenue, we know that government demand can be unpredictable, both in scale and timing," he said, though he later added that the company's government business "remains strong."

Foundry's outlook, called alternately "cautious" and "conservative" by a number of Wall Street analysts, prompted a downgrade by WR Hambrecht & Co.

"Although impressed with the company's ability to consistently post strong results, we believe that, based on the likelihood of a more intense competitive environment during the latter portion of 2004, valuation has become a more critical concern," wrote WR Hambrecht's Ryan Hutchinson, downgrading the concern to "hold" from "buy."

Lehman Brothers analyst Jiong Shao said Foundry's near-term business seems to be solid but noted that concerns regarding government spending "seem quite valid."

"We are not seeing the government business decline dramatically in the near term, but -- longer term -- this customer concentration is a key concern," he said.

Mr. Shao said Foundry's U.S. government contracts, largely with federal bodies such as the Department of Defense, have grown rapidly over the last 12 months but noted that Foundry is trying "very aggressively" to diversify its customer base.

The Lehman analyst said the company may seek greater opportunities in its markets in Europe and Japan, adding that investors will have to wait and see how such efforts at diversification pay off.

WR Hambrecht makes a market in Foundry. It wasn't immediately clear whether Mr. Hutchinson owns any shares of the company.

Lehman Brothers does have an investment-banking relationship with Foundry, but Mr. Shao doesn't own any shares.

-Gretchen L. Wilson, Dow Jones Newswires; 201-938-5394

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To: 2MAR$ who started this subject1/29/2004 6:45:19 PM
From: 2MAR$
   of 12
***Nortel $6.58~$7.80 Leaps After Earnings Blowout

By Scott Moritz Senior Writer
01/29/2004 06:20 PM EST

Updated from 4:46 p.m.

Nortel (NT:NYSE - news - research) surged late Thursday as investors celebrated a huge quarter. But the resurgent Canadian telecom gearmaker spent much of its conference call warning analysts not to bet the house on a repeat.

Nortel soundly beat fourth-quarter estimates Thursday and said it expects to grow faster than the market in 2004. Its shares zoomed 17% in postclose action, as gross margin expanded sharply in the latest period.

The news comes near the end of a month that has been very good to Nortel's long-suffering shareholders. Counting this afternoon's postclose rally, the stock has nearly doubled in the space of a month as investors have bet that telecom-industry network spending will finally revive this year. That surge has also lifted rivals ranging from Lucent (LU:NYSE - news - research) and Foundry (FDRY:Nasdaq - news - research) to JDS Uniphase (JDSU:Nasdaq - news - research) .

"Their quarter was very good," says UBS analyst Mike Urlocker, whose firm has a buy rating on the stock and banking ties to the company. "They had growth in wireless, growth in wireline thanks to [voice over Internet protocol] and a sustained recovery in enterprise sales. All that, and gross margins held up well."

Indeed, the company's message was surprisingly positive for the fourth quarter, considering how poorly Nortel was performing just a year ago. Even as investors expect to see a bounceback in telecom spending this year, Nortel expects to outperform its peers. But seeking to tamp down red-hot expectations, it won't say exactly how well it expects to do in the first quarter.

"While we expect that the percentage growth in the overall capital spending by our customers will be in the low single digits in 2004 compared to 2003, we expect to grow faster than the market by leveraging our particular strengths in Voice over IP and wireless data solutions," CEO Frank Dunn said in a earnings release.

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To: 2MAR$ who started this subject2/3/2004 6:35:40 PM
From: 2MAR$
   of 12
CSCO ($26.24~$25.24) Slide Steepens on Cautious Note

By Scott Moritz Senior Writer
02/03/2004 06:23 PM EST
Click here for more stories by Scott Moritz

Updated from 4:14 p.m.

Cisco (CSCO:Nasdaq - news - research) posted the obligatory blowout quarter, but its stock fell flat as worries about sales growth flared up again.

The tech titan reported strong fiscal second-quarter numbers after the close Tuesday. On a subsequent conference call, CEO John Chambers guided toward the expected 1%-3% sequential sales rise in the seasonally weak third quarter. He also shrugged off questions about pricing pressure.

But investors who have been bullish on the networking sector chased Cisco and its highflying peers sharply lower. Cisco fell $1.10 to $25.31 in after-hours trading as some skeptics focused on the the company's failure to beat sales-growth expectations.

"They have a 14-week quarter -- that's one extra week, so it seems like they don't have any sales juice," says one trader with no Cisco positions. Earlier, in Tuesday's call, Chambers had noted that the extra week "will have some positive influence."

The news comes as Wall Street weighs the strength of the economic recovery that has buoyed tech stocks in recent months. Chambers made remarks that could potentially undercut the spending-revival story that has boosted these stocks.

The "majority of our customers are cautiously optimistic but more conservative on capex and hiring than you would expect at this stage of the recovery," Chambers said Tuesday.

Otherwise, Chambers' comments on the call were mostly as expected. The executive didn't offer specific earnings-per-share guidance, though he did note a latest-quarter decline in gross margin.

The executive said second-quarter gross margin dipped to 68.5% from 69% in the fourth quarter, due to sales of lower-margin products, mostly gear to telcos. When asked on the conference call about price competition, Chambers said there was "nothing abnormal as far as pressure in the market."

Early on in the postclose call, Chambers noted that Cisco's book-to-bill ratio was below 1 in the latest quarter. That figure reflects the number of orders received vs. those shipped and can give investors a vague sense of sales trends.

Strong Position
For its fiscal second quarter ended Jan. 24, the San Jose, Calif.-based communications gear giant posted a profit of $1.29 billion, or 18 cents a share, before an accounting charge. That's up from $991 million, or 14 cents a share, a year earlier and a penny ahead of the Wall Street analyst consensus estimate. After the accounting charge, latest quarter earnings were $724 million, or a dime a share.

Revenue rose to $5.4 billion from $4.7 billion a year ago, again ahead of estimates.

"Our strong position in the core switching and routing business continues to be complemented by positive momentum in our advanced technologies, especially this quarter in storage, security, wireless and IP telephony," CEO John Chambers said. "The company is also gaining significant momentum in the consumer space, driven by innovative products delivered by the Linksys division."

For the quarter ending in April, analysts project an 18-cent profit on sales of $5.4 billion, though traders who have been bidding up the shares of networking companies would surely like to see more. Cisco shares are up 10% on the year amid talk of a network spending rebound.

Expectations always run high when Cisco talks about its sales outlook. The company was long one of Silicon Valley's great growth stories, racking up huge gains throughout the 1990s. Yet even as its expansion has cooled in recent years, Cisco has remained the top player in the communications-equipment market, and its numbers are seen as foretelling larger spending trends.

Investors' focus on the networking industry has only grown sharper in 2004, as Cisco's once-forgotten peers -- beaten-down telecom equipment giants such as Nortel (NT:NYSE - news - research) and Lucent (LU:NYSE - news - research) , to name two -- have enjoyed a remarkable resurgence. Shares across the networking sector jumped last month as Wall Street latched onto the notion that big telcos like Verizon (VZ:NYSE - news - research) will soon resume sinking big bucks into network infrastructure.
Router Rivals

Further raising the bar for Cisco were comments last month from Scott Kriens, CEO of rival Juniper (JNPR:Nasdaq - news - research) . Following his own company's earnings blowout, Kriens volunteered that the large-router market the companies share is "robust" enough that "Cisco will have a strong quarter." Routers are high-speed junction boxes that help direct Internet traffic.

Cisco's news comes as analysts have begun to wonder if the networking industry's helium-filled bounceback is indeed supported by fundamentals. Some observers suspect that the real winners in this race will be companies such as Cisco and Juniper that offer gear that makes networks more efficient.

Meanwhile, Cisco's results can also be read as an indicator of the health of broader corporate information technology spending. Unlike most of the big telecom gear makers, Cisco makes most of its money selling things like routers to big companies for their internal networks.

But being the juggernaut that it is, Cisco finds even delivering on investors' high expectations doesn't always translate into a marketwide rally. Such was the case following Cisco's last earnings blowout, a first-quarter upside sales surprise that failed to ignite a marketwide rally.

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To: 2MAR$ who wrote (9)2/4/2004 1:52:28 AM
From: 2MAR$
   of 12
CIEN ($8~$6) Warns of Sales Shortfalls

By Scott Moritz Senior Writer
02/03/2004 04:52 PM EST
Click here for more stories by Scott Moritz

Ciena (CIEN:Nasdaq - news - research) warned Tuesday of a steep sales shortfall, citing an order delay.

The Linthicum, Md., maker of optical gear for telecom networks said it expects first-quarter revenue of $66.4 million. That's some $9 million short of the Wall Street analyst consensus, a gap CEO Gary Smith attributed to "timing associated with a single order."

The setback indicates that Ciena continues to lack a hot product that big telco customers are eager to expend their scarce capital dollars on. Ciena rivals such as Nortel (NT:NYSE - news - research) and Juniper (JNPR:Nasdaq - news - research) have surged this year as investors bet their gear will be snapped up as big telcos like Verizon (VZ:NYSE - news - research) boost capital spending.

Meanwhile, Ciena's industry-leading optical switch, the CoreDirector, is losing traction as phone companies shift toward rival products from Sycamore (SCMR:Nasdaq - news - research) and new equipment from Alcatel (ALA:NYSE ADR - news - research) .

"Although we have delivered the equipment to fulfill this order and the customer is pleased with its performance, it has taken longer than we anticipated to work through the formalities and processes associated with revenue recognition," Smith said. Ciena doesn't recognize revenue until its gear is installed and tested by the customer.

The company expects to lose 8 to 10 cents a share for the quarter on a pro forma basis, excluding certain charges. That's a shade more than the 8 cents analysts surveyed by Thomson First Call expect Ciena to lose. Based on generally accepted accounting principles, Ciena expects to lose 17 to 18 cents a share.

Ciena hopes to make it back in the second quarter, though. "We are confident we will work through these formalities in our fiscal second quarter, and while the environment remains challenging, we currently anticipate fiscal second quarter revenue growth of up to 20% sequentially," said Smith. That would still be below current estimates, which call for second-quarter revenue of $84 million -- some $5 million above Ciena's target.

On Tuesday, Ciena slipped a nickel to $7.29.

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To: 2MAR$ who wrote (10)2/21/2004 9:58:17 PM
From: 2MAR$
   of 12
***BBOX ( $50~$60~$52) Black Box beats by $0.03 (BBOX) 49.90: Reports Q3 (Dec) earnings of $0.66 per diluted share, $0.03 better than the Reuters Research consensus of $0.63; revenues fell 13.1% year/year to $133.1 mln vs the $129.8 mln consensus

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To: 2MAR$ who started this subject2/22/2004 8:17:54 AM
From: 2MAR$
   of 12
Juniper($25): From Bleeding to Buying

The rebounding network-gear maker is now an acquirer. Its deal for NetScreen Technologies sets it head-to-head with Cisco

A tech recovery may be in only its nascent stages, but don't tell this to execs at Juniper Networks (JNPR ). Over the past 16 months, the maker of high-end networking equipment has vaulted back from death's doorstep. Its reliance on business from struggling carriers like Qwest (Q ) and WorldCom has faded, and its revenues have soared -- up 28%, to $701 million, in 2003. Advertisement

Juniper turned a $119 million loss in 2002 to a $39 million profit in 2003, and black ink is expected to jump 233% this year, to $131 million. All the while, Juniper's stock has rocketed 518% since late 2002, from $4.43 to $27.36.

Now, Juniper is moving from the comeback trail to the offensive. Its Feb. 9 acquisition of NetScreen Technologies for $3.5 billion gives Juniper its first substantial hook into the enterprise-networking market -- an industry dominated by Cisco Systems (CSCO ). NetScreen, which builds and sells network-security products primarily to corporations, offers a significant change for Juniper, which has targeted telecom outfits almost exclusively in its eight-year history. "It's time to lead," declares Juniper CEO Scott Kriens. "The distinction of enterprise vs. carrier is going away."

"ALWAYS A RISK." It's a pivotal growth strategy for Kriens, who must prove Juniper's salt as one of tech's most richly valued stocks. Its current-year price-earnings ratio of 78 puts it in the same league as the high-flying Internet stocks, nestled between the ratios of eBay (EBAY ) and Yahoo! (YHOO ).

While Juniper boasts enticing growth potential, it continues to operate in Cisco's long shadow -- no easy task. Its giant rival's research-and-development tab alone is over four times greater than Juniper's annual sales. Moreover, delivering on Juniper's promise will depend greatly on its ability to integrate acquisitions. "That's always a risk," says Troy Jensen, analyst at ThinkEquity Partners.

Cisco declines to comment on its competitors. However, when asked about Juniper's deal to acquire NetScreen, a spokesperson says: "Cisco continues to see strong interest from customers and momentum in the network-security space, and has a long history of innovation and expertise in this area."

OTHER TARGETS? If Juniper is serious about chipping away at Cisco's bread-and-butter markets, including 70% share of corporate routers worldwide, it'll need to significantly expand its capabilities. The Sunnyvale (Calif.) outfit cut its teeth selling to telcos, where the Internet protocol standard reigns supreme. Corporate networks, however, typically require equipment that handles several different communication protocols -- an area where Juniper is less adroit, says IDC networking analyst Paul Strauss. "Juniper is miles and miles away from doing this," says Strauss. "It will be very difficult."

Although Kriens concurs that Juniper needs to continue expanding its product line, he downplays the competition with Cisco and is mum on future acquisition targets. In fact, Kriens insists that Juniper's first choice will be to enter new markets through internal development. "Acquisitions are a tactic, not a strategy," says Kriens. But given that Juniper's R&D budget is roughly 6% of Cisco's, it's a good bet that acquisitions will play a critical, ongoing role.

Obvious targets, say analysts, include switchmakers, such as Extreme Networks (EXTR ) and Foundry Networks (FDRY ). Extreme, based in Santa Clara, Calif., boasts a $970 million market cap (less than one-tenth Juniper's), yet lost $197 million on $363 million in 2003 revenues. Foundry, based in San Jose, Calif., notched $75 million in 2003 profits on $400 million in sales and is valued at $3 billion. Both concerns sell to enterprises and service providers. "They should have started [acquiring companies] a year ago," says ThinkEquity's Jensen. "It makes sense...and Juniper has a great brand out there."

MARRYING A NEIGHBOR. While integrating acquisitions can be problematic, Juniper has displayed some success in this realm. In 2002, Kriens & Co. acquired 600-person Unisphere Networks, based in Westford, Mass. Despite the bicoastal arrangement, the deal has gone relatively smoothly and has contributed to Juniper's turnaround.

Although the NetScreen acquisition brings over a 900-strong staff, its offices are literally a stone's-throw from Juniper headquarters. That, plus NetScreen's complementary products, should make it easy to absorb its business -- expected to hit $374 million in 2004 sales. "I can look out my window and see NetScreen's offices," says Kriens. "If anything, this should be easier [to integrate]."

If all goes as planned, it will cap a blistering turnaround for Juniper. But with acquisitions to digest and increased competition looming with Cisco, Juniper will have to traverse some rocky terrain.

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