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June 22, 1999
Newbridge Attracted To Stanford's Technology Lead
TORONTO -- Newbridge Networks Corp.'s (NN) move to expand its broadband wireless operations through the planned acquisition of Stanford Telecommunications Inc. (STII) appears expensive.
As reported, Newbridge, Kanata, Ont., is acquiring Stanford Telecommunications, Sunnyvale, Calif., in a stock-for-stock exchange, but it will retain only Stanford's wireless broadband products group. Stanford is required to sell its other operations under the pact.
Newbridge, a networking equipment vendor, figures it will end up paying net $280 million, after dispositions. Assuming this figure is correct, the price seems expensive, since Standford's broadband wireless business currently represents less than 10% of the company's annual revenue, which was $165.4 million for its fiscal 1999 period, which ended March 31.
Newbridge chief financial officer Ken Wigglesworth defended the price by noting that Stanford is "at the front end" of the industry in the development and sale of broadband wireless technology, including modems and network interface equipment.
"We estimate (Standford's) lead time to be a least 12 months," commented Newbridge spokesman Paul Goyette.
Stanford's broadband wireless technology, which is already used in Newbridge's switching equipment, allows telecommunications carriers to improve customer access to their networks.
The high growth of data traffic is creating bottlenecks at the edge of networks where customers send or receive information, so the demand for technology that alleivates this congestion is growing, Wigglesworth said.
Wigglesworth said Newbridge's existing wireless broadband business has booked $1 billion worth of business over the next three years.
Newbridge Network Corp. (NN) calculates the estimated $210 million it will pay for Stanford Telecommunications Inc. (STII) as follows:
Initially, Newbridge expects to pay the equivalent of about $490 million for all of Stanford. But then Newbridge will apply the proceeds raised from the sale of assets by Stanford - an estimated $210 million - against the initial outlay to end up with a price of around $280 million.
Ken Wigglesworth, Newbridge's chief financial officer, said the $210 million Stanford is expected to raise from asset sales is based on bids already received for these assets by Stanford.
Newbridge's two major competitors in the wireless broadband arena are Nortel Networks Corp. (NN) and Cisco Systems Inc. (CSCO).
Wigglesworth said the acquisition of Stanford will help it compete against these rivals by giving it complete access to Stanford engineers, and allowing it to boost the profit margins earned on the sale of broadband wireless equipment.
Even though Stanford is currently a Newbridge supplier, Stanford also had obligations to its other customers, which limited Newbridge's influence over Stanford's operations and the cost of production, Wigglesworth explained.
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