STOCKREPORTS

Bay Networks, Inc.

NYSE Symbol BAY In S&P 500

Recent Price 28.25 52 Wk Range 28.50 - 16.13

Yield Nil 12-Mo. P/E NM

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) 3- Fair Value 27.70 Risk HIGH Earn/Div Rank B
Technical Evaluation: NA since NA Rel. Strength Rank (1 Lowest - 99 Highest) 89 Insider Activity UnFavorable

Overview 21-APR-97

Revenues in FY 97 (Jun.) should grow at a rate in the low single-digits, as BAY struggles to regain momentum in the marketplace. The company was late to market with products in the fast-growing switching area, while older shared-media products have experienced decelerating growth. Bay has since rolled out several new products, but their impact is not likely to be felt until FY 98. Revenues from acquisitions, most notably Centillion and Xylogics, should help buffer against slower growth businesses. Gross margins will remain under pressure, as BAY must increase its price aggressiveness to revive revenues. R&D spending will continue at a rapid pace, but we expect management to take some actions on expenses in light of the lower revenues. We are estimating EPS of $0.60 for FY 97, excluding one-time charges, and see EPS of $1.00 possible in FY 98.

Valuation 21-APR-97

Following its fiscal third quarter report, we reduced our earnings estimates and downgraded BAY to "hold" from "buy." Our buy recommendation had been based on the appointment of a highly respected Intel executive to the Chairman and CEO position. Since BAY's current problems have stemmed from poor execution, particularly in introducing new products, we believed with new management BAY's new product roll-outs could translate into new sales momentum. However, it now appears the hurdles in restructuring BAY into a more nimble company, able to focus solely on execution, are higher than we first perceived. We believe BAY will likely achieve its goal, probably in 1998, rather than in 1997 as we originally believed. Since we still see this turnaround, and do not perceive much downside in owning BAY's shares given its current depressed valuation, we recommend holding the shares.

Key Stock Statistics

Fiscal Year Ending Jun. 30

Dividend Data: No cash dividends have been paid, and the company has no plans to pay any in the foreseeable future. A three-for-two stock split was effected on November 24, 1995.

Business Summary 21-APR-97

While the product of a merger that occurred nearly three years ago, Bay Networks appears to still be defining itself as a unified company in the fiercely competitive networking industry. Bay was formed by the October 1994 merger of SynOptics Communications, a leading supplier of intelligent hubs, and Wellfleet Communications, a major manufacturer of internetworking products. Since then, Bay has made a number of small acquisitions, and now offers a full line of products for high-performance networks, including intelligent hubs, routers, local area network switches, remote and Internet access solutions and sophisticated management software. Similarly, the networking industry as a whole has been consolidating as participants seek to better compete against the broad solutions-based product offerings of market leader Cisco Systems.

Intelligent hubs reside at the center of networks and serve as control and consolidation points for network activity. Hub products are both modular, offering a variety of configuration and growth options, and nonmodular, optimized for particular network requirements.

Internetworking products allow multiple types of local area networks (LANs), comprised of multi-vendor computer equipment, to form an internetworked system. The company's internetworking product line includes local and remote bridges, local and remote routers and switches. Switching products interconnect LANs by supporting multiple parallel communications and eliminating LAN bandwidth congestion. Access products permit users to connect to the corporate network from remote locations.

Network management products distribute management intelligence throughout geographically dispersed networks and enable network administrators to monitor and control the network.

In 1996, BAY made several small acquisitions. It acquired privately-held NetICs Inc., a maker of high-performance Fast Ethernet switches; the Digital Signal Processing (DSP) modem business of Penril Datability Networks; LANcity Corp., a leading vendor of cable modem technology; Tel Aviv-based Armon Networking, a global provider of RMON-based distribution analysis tools and multi-segment LAN probes; and Performance Technology, Inc., a leader in LAN-to-Internet access for small and medium offices. Its larger acquisitions during 1995 included: Xylogics, Inc., a provider of remote access products for corporate networks, in exchange for 8.4 million common shares; and Centillion Networks, Inc., a leading provider of Token Ring switching products, in exchange for 5.9 million (adjusted) common shares.

In October 1996, the company named David L. House Chairman, President and CEO. Mr. House was a long time senior executive at Intel Corp.

Capitalization

Long Term Debt: $109,995,000 (3/97).

Curr. Ratio	3.7	3.6	3.6	NA	NA	NA	NA	NA	NA	NA
% LT Debt of Cap.	9.1	12.4	17.8	NA	NA	NA	NA	NA	NA	NA
% Net Inc.of Revs.	10.0	9.8	11.1	11.4	11.8	NA	NA	NA	NA	NA
% Ret. on Assets	15.5	13.6	NA	NA	NA	NA	NA	NA	NA	NA
% Ret. on Equity	22.1	20.1	NA	NA	NA	NA	NA	NA	NA	NA

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Offices--4401 Great American Pkwy., Santa Clara, CA 95052. Tel--(408) 988-2400. Website--http://www.baynetworks.com Chrmn, Pres & CEO--D. L. House. Exec VP & CFO--D. J. Rynne. Secy--M. Kersten. Investor Contact--Linda Fellows (408) 495-1964. Dirs--A. Carr, S. H. Carter Jr., D. L. House, J. S. Lewis, A. K. Ludwick, B. F. Robelen, R. V. Schmidt, P. J. Severino. Transfer Agent & Registrar--First National Bank of Boston Shareholder Services. Incorporated--in Delaware in 1994. Empl-- 5,800. S&P Analyst: Megan Graham Hackett

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997