The networking giants' stocks have taken a beating this week, following a series of lacklustre financial results and profits warnings.
Cisco's profits just met Wall Street estimates, but its shares fell on general uncertainty about the growth prospects for its market sectors (see yesterday's story). 3Com stock dropped 13 per cent in two days on concerns about its likely third quarter profitability.
Xylan fell by 22 per cent after announcing lower than expected profits and warning that its new product line will be delayed. The figures looked good on paper but some analysts had expected even more from the two-year old organisation.
Fourth quarter revenue rose 167 per cent to $41.5 million with net income increasing more than tenfold to $5 million compared to the same period last year. However, Xylan only shipped its first products in January 1995, so more meaningful comparisons are with the third quarter of 1996 - revenues rose 17 per cent and net income nine per cent.
For the year, revenues trebled to $128.5 million and net income was $15.2 million, reversing a first year loss of $9.4 million.
Meanwhile, Bay Networks is expected to firm up its restructuring plans tomorrow, with some analysts predicting it will lay off 1,200 employees. However, a statement from chief executive David House said the figure will be closer to 1,200, which would still be two per cent of the workforce.
Analysts were also worried by heavy selling of stock by former Bay executives, which some take as a sign of falling confidence in the company. Among those who filed intentions to sell shares were former chief exective Andy Ludwick and former chief technical officer Ronald Schmidt, both still Bay directors. The executives' moves was also taken by Wall Street as an indication that, despite persistent takeover rumours around Bay, the company will not find a new owner in the near future.
Finally, Cascade's shares fell 36 per cent in one day, reflecting investor concerns about growth in its core market, frame relay switches. Chief executive David Smith said the company will "never have to rely on one technology, one product, one customer again" and announced a diversification strategy. Main growth is expected from ATM switches and Internet connectivity software called IP Navigator. Frame relay switches have already decreased in value to Cascade, accounting for 75 per cent of its revenues, compared to 95 per cent a year ago, say analysts.
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