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Ejabat: Ascend still on top
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October 20, 1998: 2:47 p.m. ET
CEO and president of networking firm explains earnings report to calm investors
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NEW YORK, (CNNfn) - As a result of an earnings shortfall, networking company Ascend Communications was down sharply during morning trading Tuesday. Though still trading near its 52-week high, the company was downgraded by two major Wall St. firms on the heels of its earnings disappointment and confusion over a financing write-off, triggering a selling frenzy that has sent the stock tumbling. Ascend (ASND) was down 3 3/16 by early afternoon.
CNNfn's John Defterios spoke with Ascend's President and CEO Mory Ejabat about the company's future and its place in the digital networking revolution. Ejabat spoke about revenue growth, technological developments, and the direction of his company.
Here is a transcript of his "In the Game" interview:
DEFTERIOS: Let's cover what particular viewers are interested in: why the selling now if you've met expectations? I know the stock is trading just below a 52-week high. There are some concerns about revenues going forward here?
EJABAT: No, it's not just because of the revenues going forward. We had strong earnings last quarter and we are fairly comfortable with the estimate going forward actually. We are fairly positive about our prospects for going forward for Q-4 and Q-1. There is a confusion in the market with respect to some of the write-off we had and that was based on some of the financing we provided for some of our customers, and we wrote that off and we didn't consider that as revenue at this quarter. So that has caused some confusion between investors.
DEFTERIOS: We had a couple of houses downgrade the stock today on Wall Street, but by and large, more favor the company. How do you respond to the fact that they have concerns about revenue going forward? They are not being realistic in your view then?
EJABAT: That's correct. We have about 30 analyst covering Ascend and out of those 30 about two of them... either put us on hold or downgraded us, and that is a misunderstanding of those firms. They don't understand the technology, they don't understand the industry, and that is why they downgraded the stock. We are in a very great position in respect to the next-generation networks. We are the only company at this point that can provide that type of technology on products for our customers.
DEFTERIOS: One tech executive I spoke to said that a company that has greater exposure to the Internet is going to do better in 1999 because of the outlays for phone company expansions, particularly in Asia and Latin America and the slowdown perhaps in capital spending. Where are you weighted? If you were to break down your overall pie, Internet data related versus the telecom sector, how does it break down for you?
EJABAT: We're about 50-50... the old circuit switch network, which is the voice network, has to be upgraded to be capable for voice, data, fax, and multimedia in the same network. We are the only company, at this point, that can provide the product that allows the telephone companies and the Internet providers to migrate from the voice network to a new network infrastructure. And we are in a great position to do that.
DEFTERIOS: I look at Cisco here, as I punch it up on the computer, the stock is up nearly a buck today. The reason I bring it up is its price to earnings ratio is at 68. You are given a price earnings ratio on forward earnings for '99 at 37. Why such a huge gap here?
EJABAT: Cisco is a great company. They have done very well in the enterprise area. We are in the telecom and Internet business. The reason is there is some spending being shifted from the voice network to the data network and the investors still haven't realized the magnitude of the change and the possibilities for Ascend at this point.
DEFTERIOS: Mory, there's one other thing I want to bring up with you today. You know that the share structure of Lucent is going be changing towards the end of 1998, which is bringing a lot of speculation that when they can issue their own stock, they're looking to buy some partners. Ascend is at top of the list. Are you talking with them now?
EJABAT: No, we are not talking with them. Actually, their structure changed in the beginning of the quarter -- at the beginning of October -- and nothing has happened. There was all this speculation that there would be something like that happening. But, we're not in any sort of discussion with them. In that respect, we do have a great relationship with Lucent in our reseller agreement.
DEFTERIOS: Would you like to be partners with them?
EJABAT: Well, at this point, we feel that we have a great product and great technology to be able to stand on our own and we believe we're one of the unique companies in the industry that can do that. 
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