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November 6, 1995

AMERICAN ELECTRONICS ASSOCIATION

By CBR Staff Writer

The American Electronics Association held its annual investment conference in Monterey, California last week, and some notables were on hand with a few polished quotables – and Reuters had a reporter on hand to take it all down.

Bay Networks may buy but prefers to do it all

Bay Networks Inc sent its chief financial officer William Ruehle along, and his message was that the company expects operating margins to be in the 20% range in fiscal 1996. In its fiscal first quarter ended September 30, Bay Networks’s operating margins stood at 20.5% of net sales, up from 20.1% in the June quarter. Ruehle also said he expects the company’s gross margins, which stood at 55.2% of sales in the recent first quarter, to be at or slightly below the 55% level, depending on pricing pressures and product mix. In fiscal 1995 gross margins were slightly above 55%. He also said Bay Networks may make further acquisitions but unlike Cisco Systems Inc does not have any kind of target. We’d prefer to do it ourselves, but where we can’t we look for partners or acquisitions, he said. Last month, Bay announced plans to buy Xylogics Inc.

SyQuest Technology plays catch-up with Iomega

SyQuest Technology Inc has high hopes for its mass market removable hard disk drive, but founder and president Syed Iftikar had to warn that gross margins in fiscal 1996 could be lower than fiscal 1995’s margins of 25%, due partly to higher start-up costs for the EZ removable hard drive. We’re losing money in EZ, so in the first two quarters margins will be depressed, he said, adding that margins in the second half of the year should pick up. He also confessed that SyQuest had been plagued by manufacturing and quality problems as well as competitive pressure – Iomega Corp is making a big play for the same market. Basically, last year was a manufacturing nightmare, he sighed. SyQuest was wrong-footed by Iomega’s new version of its Zip drive and enhanced version of its high-capacity disk, and has been scrambling to develop and get competing products to market. But Iftikar assured the assembly that manufacturing and quality problems are behind SyQuest and that determined cost-cutting measures should take effect by next April. SyQuest’s chief financial officer James Graber also took the stand and said the company is prepared to ship two to three times the (unit) volume this quarter versus last quarter. He said the company is confident it will introduce five new products in fiscal 1996. This will be a tremendous growth year, almost explosive, chorused Iftikar. He said that low-end drives, which yield lower margins but will help SyQuest secure market share, will account for about two-thirds of the company’s overall business this year.

Association bears good tidings on Japan

The American Electronics Association had some news of its own, in the shape of the first comprehensive survey of Japan’s $37,200m a year software market – which shows that Japan’s software imports in 1994 totalled $2,610m and imports from the US accounted for a full 96% of the total. The report found that Japan’s software exports to the US totalled $1,550m last year, of which 94%, $1,460m, was computer games software.

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Five to eight acquisitions for Cisco this fiscal

The successful and ambitious among the high-tech fraternity are going on a feeding frenzy and eating every small but promising company in sight – and few have been as rapacious as Cisco Systems Inc. Don’t imagine that the company is approaching satiety though – the networking company plans to make five to eight acquisitions before the current fiscal year ends in July, president and chief executive John Chambers told the conference. You’ll see us acquire conservatively five, more in the neighbourhood of eight companies this year, depending on our ability to absorb them, Chambers asserted. He also said he estimates Cisco shipped well over 100,000 units in its first quarter, just ended. Any mathematician could see we’ll ship more than 100,000 units. As rece

ntly as the 12 months to August 1994, Chambers said Cisco shipped 117,000 units, and the just-ended quarter would mark the first time Cisco had shipped more than 100,000 units in a single quarter. The trade association was able to honour Cisco too – it announced that the company was its fastest growing member in terms of gains in its share price over the past five years: the Cisco price has risen 2,655% over the period – $75.75, compared with $2.75. Most recent acquisition moves are Grand Junction Networks Inc and Internet Junction Inc. Chambers also said he expects fairly strong order growth going forward: in its fiscal year ended July, orders rose over 50%. As for challenges ahead, one, he said, is shrinking lead times as customers demand products in one to three weeks, compared with the typical 12-week period. That may make revenues irratic, he warned. You’ll see some movements within order rates. You get smoother rates with longer lead time.

Intel plans low-cost, low-end Internet server in 1996

Intel Corp’s message for the conference was that it plans to offer an Internet server sometime next year. We’re developing an Internet server for small and medium-sized companies, said senior vice-president Frank Gill. Next year I’d expect an Internet server to be on the market at low prices, say under $10,000, one you’ll be able to buy from Internet access providers.

Oracle looks for a recovery in licence sales this quarter

Oracle Corp chief financial officer Jeff Henley expects licensing revenues, which slumped in the recent August quarter, to improve in the current fiscal quarter ending this month. Server licensing revenues will improve this quarter, Henley said, adding that Oracle’s applications business was growing fast.

KLA sees rapid rise in Rapid sales

KLA Instruments Corp is looking for brisk sales of its Rapid wafer inspection system for chipmakers, because the thing took much longer than expected to get ready for market, causing pent-up demand. But gross margins in the current second fiscal quarter could be slightly below the 55.3% of net sales in the first quarter, said Robert Boehlke, chief financial officer, because Rapid generates lower margins than other KLA products.

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