Newbridge moves please analysts
Change in direction: Repositions itself to offer
broader package
Jill Vardy
Financial Post
OTTAWA - Newbridge Networks Corp.'s transformation over the past
year has helped ensure it's a player in the hottest new niches of the
telecommunication business. This was the message the company gave
at yesterday's annual shareholders meeting and at an earlier meeting of
analysts.
"I'm feeling pretty damned good about Newbridge," said Terry
Matthews, chairman and CEO. "Our target market this year has
dramatically changed and you can expect from the company much
better performance."
While analysts at the meeting weren't quite so enthusiastic, they seemed
pleased with the telecommunications equipment company's recent
management changes and acquisitions, which they say have fixed
production problems and Newbridge's poor public visibility.
"We heard a well-articulated strategy, some exciting products and some
nice contract announcements," said Paul Silverstein, technology analyst
at BancAmerica Robertson Stephens, who rates the stock a "buy".
Newbridge is repositioning itself as a company selling not just network
switches, but complete technology and services solutions. Its
customers are typically large phone companies, telecommunications
suppliers and Internet service providers.
One problem for customers is that while half the traffic sent over their
networks is data instead of voice signals, sending that data returns just
10% of their revenues. So Newbridge will differentiate itself from its
giant competitors by selling a package that will allow customers to
increase their services and, ultimately, their profits, said Alan Lutz, the
company's president.
Newbridge hopes this differentiation will help it compete against much
larger rivals like Cisco Systems Corp., Lucent Technologies Inc., and
Nortel Networks Corp. "This is a tough business to be in. But it's a lot
tougher because I'm in it," a grinning Mr. Matthews told the
shareholders.
The next year will see the company concentrate on improving its
balance sheet, expanding the use of outside contractors to speed up
manufacturing, buying companies to complete its line of Internet
Protocol products, and signing up distribution partners, Mr. Lutz said.
Newbridge also announced yesterday that Intel, the chip manufacturer,
has bought a division of Stanford Telecommunications Inc., a company
Newbridge bought last June. As part of the transaction, Newbridge and
Intel will work together to create next-generation silicon chips for
wireless telecommunications.
Stanford Telecom, an expert in high-speed wireless communications,
cost Newbridge about $490-million (US) in cash and stock. But the deal
was predicated on Newbridge being able to sell several of Stanford's
units, keeping only its wireless division. Intel bought the telecom
component products division. ITT Industries of New York has agreed
to buy Stanford's defence communications business for about
$191-million (US). Selling those Stanford divisions will bring the
acquisition cost down to $280- million (US), Newbridge said.
Newbridge confirmed it has signed about $500-million (US) worth of
contracts to supply switches and wireless communications equipment
to France Telecom, Movicom of Argentina, and Toshiba Corp.
Analysts said they were encouraged by the new marketing plans to
increase its visibility among customers in the U.S. Robert MacLellan,
technology analyst at CT Securities, called the marketing strategy
"encouraging and long overdue." Newbridge has been considered by
analysts good at making equipment but poor at promoting itself.
The company has adopted the slogan "The way networks work," which
will be the heart of an intensive advertising effort to make the company
better-known in key markets, said Satjiv Chahil, Newbridge's executive
vice-president of marketing.
Analysts say they're waiting to see the completion of Newbridge's plans
in the fast-growing Internet Protocol market, in which the company is a
late entrant. Newbridge has recently purchased two companies,
TimeStep Corp. and Northchurch Communications Inc., which both
develop IP products and services. Newbridge, which already owns a
one-third stake in both companies, will pay $350-million over the next
two years to buy up the remaining portions of both. Mr. Lutz said more
acquisitions will be announced shortly.
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