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Three analysts and top management from twenty sector firms examine the Technology sector in this 89-page Special Focus - Communications Equipment Issue from The Wall Street Transcript available at (212/952-7433) or http://www.twst.com/info/info574.htm

TWST: David, how do you define the communication equipment group? Which segments do you follow most closely?

Mr. Toung: I focus on the wireline equipment companies, mainly large caps such as Lucent, Nortel (NT), CIENA and Sycamore. I also follow the communications equipment company Juniper Networks. Because of the way things have broken out within McDonald, my colleague, Peter Rubicam, covers Cisco Systems. I also cover JDS Uniphase and a wireless equipment company called Allen Telecom (ALN).

TWST: David, where are we in terms of a recovery? Are we off the bottom yet?

Mr. Toung: I don’t think we’re off the bottom. I don’t see it getting much worse, but I don’t go into the enterprise space as deeply as Sam does. I will say this — I think Sam referred to some of the government statistics — April was a pretty strong month for new orders and for shipments and also showed the first positive increase in inventories in 14 months. So the information does not come in a clear pattern, but it does show some periodic increases here and there.

TWST: David, is there any place where investors can get involved today? What are you, if anything, recommending?

Mr. Toung: One thing we do recommend is Lucent Technologies. I think that the company showed real progress in improving its balance sheet and its financial conditions. I think its success in the convertible deal shows that the credit markets do have confidence in the company. It has had some good customer wins. Lucent can take advantage of its incumbency. It has a big installed base of Class 5 switches, and it has been building products that leverage off of that — whether it’s a voice over IP product or improvement to IP centrex. I’m not saying that we’re seeing a big rebound right now. But I do have a sense that things have improved as a company. So if I were going to stick my neck out, that’s one place where I would.

TWST: David, are there any company-specific risks with Lucent right now?

Mr. Toung: Certainly the company still has a relatively heavy amount of debt, and much of it is long term. I think the convertible offering took care of any short-term liquidity issues. Another risk factor is — getting back to the Class 5 switches — it’s a product that Lucent has made a lot of money on. They make a lot of money on just software upgrades. They have to find new products or enhancements that either extend the life of the Class 5 or can replace what is a mature revenue stream.

TWST: David, are there any companies that you believe will be better suited for the eventual upturn?

Mr. Toung: Touching upon what Sam has said about Motorola, I think the numbers are very interesting for Motorola and Lucent in their wireless business. I don’t cover Motorola, but I do pay attention to it. They were reporting pretty good sequentials on their new orders in handsets and network infrastructure in the March quarter. Lucent has a 25% sequential increase in their North America wireless network business, and a 7% sequential increase globally. I don’t think that was true for the European-based equipment providers. So I think the US wireless carriers are probably in better shape than some of the European carriers that paid a lot of money for 3G networks. Also, I think a wild card here is the China market. The country went through a massive deregulation, breaking apart the China telecom monopoly into a couple of parts. You have China Unicom and China Telecom. That process took a long time to figure out who was going to be in charge of the management team. I think that has put a lot of spending on hold. That deregulation is largely over and the management teams are in place. We’re seeing some signs that spending may pick up in China. It’s a bit hard to track from my perspective here, but I think it’s something that needs to be paid attention to.

TWST: David, we’ll give you the final word.

Mr. Toung: Telecommunications is a critical industry in the US and globally. This industry is critical to economic growth in countries. Governments realize that a modern telecom infrastructure is critical to generating commerce and attracting investments and jobs. Hundreds of billions of dollars are spent each year on services and equipment. So this industry, services and equipment combined, is not going away. We all have to figure out ways to make better profits. I think this can be done and I think the industry will return to health.

TWST: Thank you. (JK)

Note: Opinions and recommendations are as of 6/10/02.

This special Communications Equipment Issue includes:

1) Special Focus - Communications Equipment - In an in-depth (9,300 words) Analyst Roundtable, Samuel Wilson Analyst for Merrill Lynch & Co, Todd K. Koffman, Managing Director at Raymond James & Associates, David H. Toung, Vice President of McDonald Investments, Inc., examine the outlook for the sector and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of 19 sector firms examine the outlook for their firm and the sector. Firms include: AltiGen Communications Inc., ADDvantage Technologies Group, Inc., Advanced Fibre Communications, Inc., Alliance Fiber Optic Products, Inc., Amnis Systems Inc., Brooktrout, Inc., ClearOne Communications Inc., Cognitronics Corporation, eOn Communications Corporation, GRIC Communications Inc. , JDS Uniphase Corporation, Lightbridge, Inc., Network Equipment Technologies, Inc., PANDATEL AG, Paradyne Networks, Inc., Plantronics, Inc., RADVISION, Stratos Lightwave, Inc. , Talk Visual Corporation Orckit Communications Ltd.