XYLAN SHARES TAKE BEATING; CALABASAS NETWORK HARDWARE MAKER SUFFERS 19 PERCENT LOSS.

Byline: Dave McNary Daily News Staff Writer

Wall Street hammered shares of Xylan Corp. on Friday, completing a two-month slide that has knocked off nearly two-thirds of the value of the data-networking equipment specialist.

Friday's fall dropped Xylan $2.375 to $10.75 for a 19 percent decline as concerns mounted that third-quarter profits will be hurt by slowing sales to its largest distributors. Shares traded as low as $9.625 before rebounding.

It was the second straight session in which Xylan hit an all-time low. Shares are now worth about one-seventh of their peak value of $74.3125 in May 1996.

More than 10.3 million shares traded hands, or eight times the average volume during the past six months, in the wake of Thursday's profit warning by French telephone equipment maker Alcatel SA. Calabasas-based Xylan receives about 20 percent of its revenues from Alcatel and another 20 percent from International Business Machines Corp.

Analyst Marc Woodward of Van Kasper & Co. said investors have overreacted to the developments, since Alcatel's problems are in such areas as large telecommunications carriers with voice networks, which are outside Xylan's core business. Xylan makes switches that link computers to data networks and the Internet and switching systems that enhance the performance of networks.

``The declines have been wildly overblown,'' Woodward said. ``This is a fundamentally strong company and the current valuation makes no sense. I'm not sure that investors are taking the time to look into the situation.''

Officials with Xylan did not return phone calls seeking comment.

Xylan's troubles began July 20, when it warned that sales to IBM would fall because the computer giant had too much Xylan inventory, and that sales to Alcatel would fall due to the typical summer slowdown in European business. During the following session, Xylan shares lost 19 percent, dropping $6 to $25.0625.

Shares stayed in that range for the next five weeks, helped by an Aug. 3 announcement of a deal with Northern Telecom to sell Xylan Omnistack and the flagship Omniswitch products, which are used to link computers in large corporate networks. Xylan stock began melting down in mid-August as part of the massive sell-off in the high-tech sector amid fears of the Asian economic crisis.

``Xylan is obviously going to have some problems,'' said analyst Stephen Frenkel of Drake & Co. ``A stock doesn't crater like this for nothing. There's a global slowdown that's affecting telecom networking.''

Frenkel said Xylan's long-term outlook might be clouded because the company's product line is less comprehensive than rivals. Larger competitors include Cisco Systems Inc., 3Com Corp., Bay Networks Inc. and Cabletron Systems Inc.

Woodward said Xylan's strategy of focusing on high-end data-networking customers is sound and predicted the company will meet Wall Street's expectations in the third and fourth quarters. He forecast Xylan's Omniswitch router should generate strong sales when it hits the market later this year.

Xylan probably will report third-quarter earnings during the second half of October. In its second-quarter report in July, the company posted earnings of $9.6 million, or 20 cents a share, beating Wall Street estimates by a penny as it more than tripled earnings of $3.1 million in the 1997 quarter and generated an 85 percent sales gain to $83.7 million.

Xylan, which has more than 700 employees, went public in March 1996 in a $109 million offering at $26 a share. The issue more than doubled in its first day of trading, closing at $58.375.

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Shares of Calabasas-based Xylan Corp. have fallen about 67 percent in less than two months.

SOURCE: Bloomberg News