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   Technology StocksEarnings: Networkers & Communications


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To: 2MAR$ who started this subject1/23/2004 2:03:48 AM
From: 2MAR$
   of 12
 
Bells Chime In With Voice-Over-Net Hype
thestreet.com

By Scott Moritz
Senior Writer
11/20/2003 02:06 PM EST
Click here for more stories by Scott Moritz

Suddenly, this month, it seems the Bells have finally discovered the revolutionary power of voice-over-the-Net.
In a rare concerted move that threatens to dramatically remake the industry landscape, big phone players BellSouth (BLS:NYSE - commentary - research), Verizon (VZ:NYSE - commentary - research), Qwest (Q:NYSE - commentary - research) and SBC (SBC:NYSE - commentary - research) have unleashed a bone-jarring salvo of press releases heralding their plans to enter the 6-year-old business of voice-over-Internet protocol, or VoIP.

Yes, this staggering strategic shift was largely contained to some small and medium-sized business offerings by BellSouth and SBC and, in Qwest's case, a "select group of customers in Minnesota." Still, to growth-hungry investors, it was validation of a theme they've been keen on for a good part of the year.


Despite the hoopla, some industry observers cautioned that, while no doubt the Net will one day be the converged pathway for all communications traffic, most of these recent announcements are, alas, little more than positioning statements.

"There's not much real action behind these announcements," says analyst Sam Greenholtz with Telecom Pragmatics, a strategy and consulting shop. The Bells "have to show they are in the market or have plans to be in the market with services."

Ever since the advent of the Internet, there has been a common assumption that new, cheaper technologies will help callers bypass the old-line phone networks and effectively hollow out the Bells' core business.

That scenario creeps closer to reality as cable companies such as Cox (COX:NYSE - commentary - research) and Cablevision (CVC:NYSE - commentary - research) roll out Internet calling services to their TV customers. Meanwhile, upstart VoIP outfits such as Vonage have signed up thousands of users to its $35-per-month unlimited calling plans.

Perhaps even more unsettling for the Bells is the rise of outfits like Skype, which offer basic phone software that users can download to make free so-called peer-to-peer calls over the Net. Given the short but brilliant success of music swapper Napster, futurists aren't exactly underestimating the growth potential of calls that require no phone company.

Bells Chime In With Voice-Over-Net Hype
Page 2

But typically, VoIP reliability and sound quality don't match that of conventional phone calls. And there are still-unsolved issues surrounding mandatory call-tracing capabilities and 911 service. Even so, industry watchers point out that the wireless industry rode to great success, despite its tremendous shortcomings.

Three years of strong competition and a weak economy have forced the Bells to cut staff and contain costs. In this penny-pinching era, the beleaguered Bells have slashed spending on ambitious network upgrades and funneled much of their cash toward debt payments.


"Capital spending has fallen below historical norms," says Greenholtz. Average spending in the industry has been between 15% and 18% of revenue. During the late '90s, that figure rose to the 20% range. Since then, capex has dropped to about 11%, says Greenholtz.

Subsequently, any talk about VoIP among executives at the Bells has been merely that: talk, says Greenholtz.

The good news for suppliers, though, is that spending has to increase at some point. The telcos will one day shift from maintenance spending to expansion and modernization work. Qwest signaled just such a move Wednesday when the Denver local phone giant picked Lucent (LU:NYSE - commentary - research) to upgrade its switches toward IP.

The Lucent deal didn't specify a cost but did call for a three-year timeframe, which is in line with analysts' predictions for VoIP progress. It also highlights the likely beneficiaries of the trend, namely Lucent and Nortel (NT:NYSE - commentary - research).

"We do expect carriers to deploy VOIP gear, but we expect a deliberate, evolutionary approach that will likely favor incumbent providers," CIBC World Markets analyst Steve Kamman wrote in a research note Thursday. "We do not expect a wholesale 'rip-and-replace' transition."

But don't expect the Bells' bombastic press releases to reflect any such caution.

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To: 2MAR$ who started this subject1/23/2004 2:09:50 AM
From: 2MAR$
   of 12
 
SUNW ($5-$5.75) Sales Higher, Loss Narrower Than Expected
thestreet.com

By K.C. Swanson
TheStreet.com Staff Reporter
01/16/2004 10:29 AM EST
Click here for more stories by K.C. Swanson

Updated from 9:44 a.m. EST

Sun Microsystems (SUNW:Nasdaq - commentary - research) shares rose early Friday, trading as high as $5.56 in the first hour of the session, a day after the company posted a smaller than expected quarterly loss. The server and storage maker also delivered an upside surprise on revenue, though sales were still a hair below last year's levels.


At about 10:25 a.m. EST, Sun shares were up 5 cents, or 0.9%, to $5.41.

Friday morning, sell-side analysts uttered cautious praise of the recent business upturn at Sun, although executives at the company offered only the most terse commentary on their near-term outlook. As has been the case throughout much of the downturn, Sun refused to give quarterly sales or earnings guidance on the firm's conference call after the close Thursday. Company officers also pointedly declined to talk about how a stabilizing economy might help Sun.

Deutsche Securities analyst George Elling, who has a buy rating on the shares, offered some of the most upbeat comments. "We have long been believers in Sun's ability to turn itself around and in the strength of its installed base," Elling wrote Friday morning. "Management's new focus on the low end, its Linux offerings, and its willingness to develop x86 servers with AMD shows that the company is willing to address some of its previous shortcomings." (Deutsche has done recent investment banking for Sun.)

Such actions helped Sun beat revenue expectations for the quarter and "will also help the company become profitable as new products come online later this year," he added. "It's not that Sun is 'knocking the cover off the ball', but rather that is has taken a step in the right direction with strong unit growth, a positive book to bill and some recovery in key markets that had been highly depressed over the past two years, such as telecom."

But others were not yet ready to recommend the shares. "What's unclear at this time is how much of the improvement stemmed from Sun's own initiatives and how much stemmed from an improving economy," wrote Needham analyst Charlie Wolf, who currently has a hold rating on the stock. "In either case, we're becoming more positive on the story, but not enough to upgrade at this time."

If Sun's upside came mostly from the economy, he pointed out, the company will still face "the overriding challenge of a hostile competitive environment."

Still, Wolf gives Sun credit for "making up for lost time" after initially dragging its heels in the move to standards-based servers. He cut his estimate for Sun's fiscal 2004 loss to 17 cents from 25 cents and the 2005 loss to 4 cents from 21 cents.

Needham hasn't done banking for Sun, but Wolf or a member of his family has a financial interest in Sun.

On the outlook front, SG Cowen's Richard Chu said he wasn't surprised by the lack of commentary from Sun, since it hasn't given guidance for a while. "The way I see it, that would have sent too strong a signal," he said. On a sequential basis, Sun's sales growth was "encouraging," he said. "I think that proves we're in a better environment."

When a Deutsche Bank analyst noted on the call that IBM (IBM:NYSE - commentary - research) gave upbeat economic commentary in its earnings report this morning, an irritable McNealy responded, "IBM must have a lot of economists on their payroll. Maybe that's getting bundled into the price of their product. I just can't predict what economies are going to do."

But McNealy also allowed the just-reported quarter was "pretty much on track. There was some nice little upside that felt pretty good." Last summer and fall, "we were facing pretty negative press and image and karma," he added. "I think that wore off and people understand we're going to stick around. That released a lot of pent-up demand."

In its fiscal second quarter, Sun's sales amounted to $2.89 billion, down 0.9% from last year's levels but above the Wall Street consensus estimate of $2.73 billion. Those results include 5.1 percentage points of currency benefit from a weak dollar -- meaning without the currency benefit Sun would have seen revenues shrink.

But Chief Financial Officer Steve McGowan said that in terms of sequential revenue growth -- which measured 14% -- Sun had just seen the best second quarter since fiscal year 1998.

Still, the competitive situation hasn't changed, Chu added, and Sun hasn't offered any plans to reduce costs (other than a minor layoff announcement). That being the case, Sun's prospects for profitability over the next two years are "very questionable," he said. "Three months ago things were tough enough that they seemed close to perhaps making much deeper cuts. The good news is that business is getting better, but the cost of that is that I think it reduces the pressure on Sun to really do something with the business model."

Chu has a neutral rating on the stock, based on both competitive concerns and valuation. "We're in the camp that feels the stock in the very short run is levitating a little bit," he said. "People expected a better quarter and that was already in the stock." SG Cowen hasn't done banking for Sun.

In the fourth quarter, Sun saw continued demand from the government sector and renewed buying from the telecom space.

Total gross margin of 41.8% was down 1.5 percentage points from the same quarter in 2003.

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To: 2MAR$ who wrote (2)1/23/2004 2:14:39 AM
From: 2MAR$
   of 12
 
* JNPR ($22-31) Jumps After Raising the Bar
thestreet.com

By Scott Moritz
TheStreet.com Senior Writer
01/16/2004 10:05 AM EST
Click here for more stories by Scott Moritz

Updated from Jan. 15

Juniper (JNPR:Nasdaq - commentary - research) is so confident nowadays that it's even raising guidance for its archrival.


After the market closed Thursday, the Sunnyvale, Calif., networking shop blew away Wall Street's targets, easily beating quarterly earnings and revenue estimates. The company also boosted first-quarter financial targets, saying it is seeing strong demand for its products. Its shares posted an off-hours rally that began modestly Thursday evening and steadily escalated through Friday morning, when early regular trading saw Juniper quoted a stunning 22% above its Thursday close.

The company's strong numbers and swaggering pose will certainly do nothing to undermine the telecom-spending-rebound thesis that has inflamed this smoking sector. In fact, CEO Scott Kriens was so sure of the industry's rising fortunes on his Thursday afternoon conference call that he even talked up his chief rival, router-making juggernaut Cisco (CSCO:Nasdaq - commentary - research).

"Cisco will have a strong quarter," Kriens said in response to a question about Juniper's market-share progress in the big router business. "It's a robust market."

As it has been throughout 2004, the entire communications-gear market was robust in the wake of Juniper's strong comments. Juniper surged $5.13 to $28.06, while Cisco rose 3%, and smaller gear peer Sycamore (SCMR:Nasdaq - commentary - research) jumped 7% in early action. Juniper earlier Friday set a 52-week high at $28.46.

Eye Candy
For the sector's many bulls, there was much to see. For its fourth quarter ended Dec. 31, Juniper posted a profit of $15 million, or 4 cents a share, up from $8.5 million, or 2 cents a share, a year earlier. Revenue surged 33% to $207 million, from $155 million a year earlier.

On a so-called non-GAAP basis, excluding certain costs, latest-quarter earnings surged to $28 million, or 7 cents a share, from $3 million, or a penny a share, a year earlier. The Wall Street consensus as polled by Reuters Research had called for earnings of 4 cents a share on revenue of $182 million.

On the postclose conference call, Juniper also boosted its first-quarter financial guidance. CEO Kriens essentially stuck with the consensus forecast of 2% sequential sales growth for the first quarter. But considering the much higher-than-expected fourth-quarter basis for those projections, the result was a strong upside surprise: Juniper projected a first-quarter non-GAAP profit of 8 cents a share on revenue of $210 million to $215 million. The First Call consensus called for a 5-cent profit on revenue of $186 million.

Investors were hardly shocked. "I think people are looking out ahead and feeling there is a bit of a new capex cycle coming," says hedge fund manager Manu Daftary with Woodrow Partners, who holds a small position in Juniper.

Budget Flush
On Juniper's call, CEO Kriens attributed a good portion of the strong fourth-quarter performance to a so-called budget flush, in which technology buyers use up their remaining allocated cash on year-end purchases. Kriens said he wasn't sure how much of that spending was one-time in nature, but he added that demand has been solid.


Tamping down speculation of a developing bubble in the telecom gear arena, Kriens said he believes the fundamentals are solid right now. The "difference between the late '90s and now is speculation vs. demand," he said.

To that end, Kriens noted that Juniper's book-to-bill ratio, reflecting products on order vs. those actually shipped, is above 1 -- a bullish signal. An equally sanguine sign from the fourth-quarter report was that strong sales volume pushed the company's gross margin to 65.9% from the third quarter's 63.4%.

"The fourth quarter was exceptionally strong, and the value Juniper brings to market is clearly reflected in all aspects of our financial results," Kriens said in the earnings press release. "We are pleased with our progress throughout 2003 and encouraged by the confidence our customers have placed in Juniper as we look forward to 2004."

Happy Days
Juniper investors have already enjoyed a happy start to 2004, as the stock has risen more than 20% amid increasing talk of a network spending revival by big telcos. And in contrast with big industry rivals such as Lucent (LU:NYSE - commentary - research) and Nortel (NT:NYSE - commentary - research), which have been among the main beneficiaries of the 2004 rally with gains of more than 40%, Juniper has actually been showing solid growth in recent quarters

cont'd

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To: 2MAR$ who started this subject1/23/2004 6:05:10 AM
From: 2MAR$
   of 12
 
SUNW Loss Narrows in Quarter
Thursday January 15, 8:04 pm ET
By Duncan Martell

SAN FRANCISCO (Reuters) - Network computer maker Sun Microsystems Inc. (NasdaqNM:SUNW - News) on Thursday posted a narrower quarterly loss on revenue at the high end of cautious Wall Street forecasts, reflecting stronger demand for computer services.
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Analysts said it was too early to tell if the December-ended quarter marked the start of a sustainable recovery for Sun, which has been hit harder than its rivals in the technology slump and has suffered falling sales for almost three years.

Santa Clara, California-based Sun, which also said it was laying off 300 workers at a California plant, did not provide a financial outlook for coming quarters.

Sun shares initially rose in after-hours trade following the release of earnings, then eased again.

For its fiscal second quarter, Sun posted a net loss of $125 million, or 4 cents per share, compared with a year-earlier loss of $2.28 billion, or 72 cents per share, which included $2.13 billion to write down goodwill and other items.

Revenue slipped to $2.89 billion from $2.92 billion, but topped the average Wall Street forecast by 5 percent and was up almost rose 14 percent from the prior quarter.

That was highest growth from the first quarter to the second since 1998, Sun said.

"There were high expectations of recovery here and they delivered on them," said Brent Bracelin, an analyst with Pacific Crest Securities

Sun, which rode the dot-com and telecom booms to heady profits, has been squeezed on the high end by rivals International Business Machines Corp. (NYSE:IBM - News) and Hewlett-Packard Co. (NYSE:HPQ - News) and Dell Inc. on the low end.

As in recent quarters, Sun's Chairman and Chief Executive Scott McNealy and Chief Financial Officer Steve McGowan declined to provide financial guidance on a conference call with analysts.

A rise in services revenue in the quarter, to $944 million from $902 million a year earlier, failed to offset declining product revenue, which fell slightly to $1.94 billion from $2.01 billion.

Excluding a restructuring charge, Sun posted a loss of 3 cents per share compared with a profit of nil per share after a gain in the prior-year period.

Analysts, on average, had expected Sun to post a loss of 5 cents per share on that basis within a range of a loss of 3 cents to 7 cents, on revenue of $2.75 billion, according to Reuters Research, a unit of Reuters Group Plc.

McGowan said that government sales were strong and there was renewed strength in the long-beleaguered telecommunications market, which is a key market for Sun.

He also said that there was a more balanced mix in sales of high-end, mid-range and low-end servers than in recent quarters.

Revenue in Europe increased 19 percent from the prior quarter, even with year-ago levels, helped in part by a strong euro, while U.S. revenue climbed 4 percent sequentially and fell 4 percent from a year earlier.

"We feel good about where we're headed," McNealy said on the conference call.

Shares of Sun fell 10 cents, or 1.8 percent, to $5.36 in regular Nasdaq trade on Thursday. After the close, the stock initially rose to $5.44, then settled back to $5.35.

Earlier on Thursday, rival IBM reported higher quarterly profit and revenue, including an 18 percent gain in computer server revenue from a year ago.

"This is not an IBM where they're now growing server revenue north of 18 percent year over year," Bracelin said. "This is a recovery and Sun has been a laggard."

Separately, Sun said it was laying off 300 workers at its Northern California manufacturing plant, and will move those operations to plants in Oregon and Scotland. Sun has about 35,000 employees worldwide.

The transition in manufacturing will take about six months, a spokeswoman said, and employees to be laid off will be notified by the end of January.

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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%)
thestreet.com

By Scott Moritz
TheStreet.com 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
TheStreet.com 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.
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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
TheStreet.com Senior Writer
01/29/2004 06:20 PM EST
thestreet.com

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
TheStreet.com 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
TheStreet.com 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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