Newbridge turns profit in quarter
Unveils $300-million deal with large U.S. phone firm
Wednesday, August 26, 1998
By Lawrence Surtees
Telecommunications Reporter
Globe & Mail
Newbridge Networks Corp. has regained its footing after stumbling for the previous three
quarters.
After nine rocky months, Newbridge not only turned a profit -- finally shrugging off the effects of
a disastrous acquisition -- but also announced a $300-million deal with a big U.S. phone
company that further brightens its prospects.
Alan Lutz, president and chief operating officer of Newbridge, pointed to the agreement with
SBC Communications Inc. of San Antonio, Tex., as proof that the company's turnaround will
not be short-lived.
"I think we've taken the first step to turning the corner," said Mr. Lutz, who took over that post in
early June.
Newbridge turned in its best performance in the past three quarters, posting a first-quarter profit
of $35.5-million or 20 cents a share for the period ended Aug. 2.
Analysts had expected the company to earn 21 cents in the quarter, according to a consensus
forecast based on a survey of four analysts by First Call Corp. of Boston.
Newbridge, based in Kanata, Ont., had a profit of $64.3-million or 37 cents a year earlier.
However, the company suffered substantial losses and stalled growth in the previous three
quarters because of problems incurred from its $108-million (U.S.) acquisition of UB Networks
from Tandem Computers Inc. in December, 1996. Instead of buying an entr‚e into the
fast-growing local-area network market, Newbridge acquired a company with declining sales
and incurred heavy charges from writing off UB's research expenses and closing most of its
operations.
Newbridge's revenue fell to $426.1-million (Canadian) in the quarter just ended from
$434.7-million a year ago.
However, sales for the recent quarter only include $7-million from the now defunct UB
Networks, compared with $69-million a year ago.
That overall decline masks an increase in revenue from Newbridge's other two core markets.
Newbridge posted an 11-per-cent gain in sales of data network equipment, which now account
for 57 per cent of company sales -- or $243-million in the quarter just ended.
And sales of its multiplexing equipment that boosts the capacity of phone lines rose 22 per cent to
$183-million in the recent period -- a marked reversal of the stalled growth in that segment in the
preceding quarter.
The value of Newbridge's orders received also rose 17 per cent to a new record.
Mr. Lutz pointed to that improvement, as well as to the forthcoming contracts from SBC, as
proof that Newbridge's existing business can grow.
"But we must also demonstrate to investors that we can better manage the company," said the
52-year-old veteran executive of both the telecommunications equipment and personal computer
industries.
Newbridge's expenses rose by only $5-million in the quarter just ended, helping the company to
turn in its first positive cash flow in the past five consecutive quarters.
"We'll remain on a pretty strict diet," Mr. Lutz told analysts and reporters on a joint conference
call yesterday. He added that further improvements will come from the work of seven task forces
he has formed since joining the company that are charged with revamping every part of
Newbridge's operations.
But Newbridge executives also see further growth on the horizon from its recent entry into a new
market segment.
Newbridge's deal with SBC comes one week after the company won two major contracts worth
up to $600-million in the next four years from both of Canada's largest high-speed, or
broadband, wireless network operators.
"We think we have a one-year lead over all our competitors in the wireless broadband market
and we expect to sustain that lead by building on our recent contracts," said Newbridge founder,
chairman and chief executive officer Terence Matthews.
Newbridge's results were released after major North American stock markets closed yesterday
afternoon. Newbridge's share price fell 30 cents on the Toronto Stock Exchange to close at
$36.30. Trading was heavy with almost 860,000 shares changing hands. |
