Michael Ching Quotations

We believe that most of the issues impacting Lucent's September quarter results are company specific. Even increasing bad debt reserves because of emerging service provider credit concerns reflects Lucent's aggressive policy towards providing vendor financing.

We spoke to Cisco last night, and we do not think there is any change in its business. We believe the factors impacting Intel's results are largely immaterial to Cisco. Cisco has a very modest exposure of revenues to Europe.

We believe that even with the stock opening down significantly, the stock will probably be overvalued.

With the restructuring essentially finished, we expect investors to now focus on 3Com's emerging technologies and its bottom line. We continue to look for the company to report a breakeven fourth quarter, although earnings per share could turn positive in the second quarter due to non-operating gains.

The fact is that Next Level's management has no indication as to whether Qwest will actually slow down VDSL deployment. We do not believe that there will be any upside to next year's numbers from Qwest and, in fact, there may be some downside.

Lucent has run up recently on media discussion of being a take-over target. We believe that in the current environment, this is a possibility.

Given the uncertainty on both service provider and corporate IT spending, visibility is the poorest in several years. We expect Cisco to be cautious on its near-term outlook despite indications that business in some segments has improved.

We expect to maintain our estimates at $1.05 a share for 2000 and $1.43 for 2001, so Motorola remains the most attractively valued stock in our universe, at 23 times 2001 EPS estimates.

Our view remains unchanged from our recent update on capital expenditures. We believe that in 2001 cap-ex will be up approximately 10 percent. We continue to forecast 17-18 percent industry growth in 2001. We expect the stocks to remain under pressure over the next few weeks as investors digest capital spending plans from carriers.

Management did outline several actions that they plan to take that should help return the company to more profitability. This will include several hundred million dollars in charges in the December quarter.

I wasn't even informed that it was up today.

We continue to believe that Cisco will be among the first companies to emerge once the end markets recover.

We continue to believe that aggregate service provider spending in the U.S. will actually grow about 10 percent in 2001, and that our companies will report an average revenue increase of 25 percent next year. Despite this, the average price-earnings multiple of our group is now approaching levels last seen in 1997-98.

The recent stock price fluctuations remind us of the old days (pre-1999) when Qualcomm's earnings outlook was cloudy and the stock traded more on speculation than fact.

The size of this charge reflects both much weaker demand forecasted over the next 12 months as well as the costs for certain commitments that Cisco felt obliged to fulfill.

Our concern on Qualcomm relates to the outlook for the handset and CDMA business. As we have indicated previously, we remain concerned that the company may take down forecasts for future earnings because we think the company's CDMA forecasts are too aggressive.

Specifically, the company suffers from a bloated inventory of older model phones, which is slowing the transition to newer, higher-margin products.

In the near-term, Qualcomm's earnings outlook has been diminished due to recent events in China and Korea. For the June quarter, we are currently forecasting 16 percent pro forma revenue growth to $750 million and 26 percent pro forma EPS growth to 27 cents. Based on the company's press release, our EPS estimate looks to be too high.

Chipset sales declined 26 percent to $269 million, and operating margins dropped to 24 percent from 39 percent. Qualcomm shipped only 11 million chipsets in the quarter, down from 15 million in the preceding quarter and 13.5 million a year ago. This disappointing performance partially reflected continued weak demand in Korea.

The growth in Lucent's optical systems revenue has been the biggest disappointment.

An acquirer could purchase the entire Lucent and recover a substantial portion of the payment through a sale of the microelectronics group.