Ascend bucks earnings trend

The most recent quarter hasn't been pretty for Cabletron Systems (CS), 3Com (COMS), or Bay Networks (BAY). What makes Ascend Communications (ASND) so special?

The remote access and wide area switching specialists announced earnings that just barely exceeded expectations, but in light of the hemorrhaging at other companies, that news may serve as a message that Ascend's own travails are largely in the past.

A certain portion of Ascend's problems in recent quarters stem from the view that the firm had a hard time digesting the $3.7 billion merger with Cascade Communications, completed last year. Also, the remote access market--once the primary driver of Ascend's revenue--has recently been glutted by a bevy of start-ups offering unique features, as well as the increasing presence of stalwart Cisco Systems.

"They sign a sweet deal with GTE, make or beat the consensus numbers by a penny, are rated a strong or moderate buy by most financial firms, and yet people still dog them with questions about the Cascade acquisition," noted Fred McClimans, CEO of market watcher Current Analysis.

Ascend has targeted wide area dial-up and switching equipment as a solid niche. It does not have to reckon with the pricing pressures of low-end switches or the unpredictability of shifts to higher-speed local technology, unlike some of its competitors. The key to Ascend's continued growth, however, is its bread-and-butter access equipment business, which is under fire on several fronts.

"They are in fairly good shape at this point. It has taken them longer than anticipated to complete the integration [with Cascade], but the real challenge for them now is to maintain their competitive edge in the access space," added McClimans.

Ascend noted strong demand for its equipment in North America and quarterly revenue increases in two currently volatile geographies: Europe and Asia.

Ascend's CEO, Mory Ejabat, seems to believe his company is out of the woods. "We continue to see strong demand for capacity in the network backbone, with ATM clearly emerging as the network architecture of choice. We also expect that growth from the consumer segment, driven by both new subscribers and increasing connect times, will drive demand for access ports," he said in a statement.

"We believe that the market opportunities are significant, that Ascend is well positioned within those markets, and that our strategy is sound."