When you see the mess into which Bay Networks Inc has got itself when all the other big communications equipment manufacturers are prospering mightily, the one word that springs to mind is Compaq. For its next trick, Compaq Computer Corp wants to be the industry number two by 2000, and it can only get past Hewlett-Packard Co by buying other companies. Digital Equipment Corp would supply the bulk, but Bay Networks would add over $2bn of finesse to Compaq’s efforts to turn the networking equipment business on its head by forcing margins down closer to personal computer levels. Bay is in such a mess that where the likes of 3Com Corp and Cisco Systems Inc are seeing their sales soar year-on-year, Bay’s fiscal second-quarter earnings were well below analysts’ expectations and sales fell 5% from a year earlier. The Santa Clara company said its per-share earnings before special factors fell to 10 cents, an embarrassing 13 cents below the consensus estimate of analysts surveyed by First Call Inc – although most of those analysts must clearly have been asleep at the wheel. Pretax charges totaled $207.2m for acquisitions, consolidation of product lines and related inventory, and reduction of excess office space. Dave House, hired from Intel in October to turn Bay around, is still putting together his management team, which makes this an ideal time for a predator to strike.
