OTTAWA (Reuters) - Troubled Canadian telecoms equipment maker Newbridge Networks Corp. said on Thursday it is open to takeover offers and that it will cut staff and products to trim costs by about 10 percent.
The strategic plan was announced with the release of second-quarter results in which the company reported a profit of 8 U.S. cents a share. On November 2, it had issued a profit warning that halved analysts' estimates of 20 U.S. cents a share. In the year-before quarter, earnings per share were 20 U.S. cents.
Newbridge (NN) said it will cut more than 10 percent of its staff, about 720 employees, outsource volume manufacturing operations, and focus its research and development on core technology. About two-thirds of the job cuts will come from the firm's Ottawa-area headquarters.
Newbridge takeover rumors have gathered steam since investors began to hammer the stock when the company posted its sixth earnings warning in 10 quarters on November 2 and announced the resignation of President Alan Lutz, who was replaced by Vice President Pearse Flynn.
Newbridge posted net earnings of C$302 million for the quarter on sales of C$481 million. It also posted net gains of $470 million on investments. In the same period last year, it had net earnings of C$53 million on sales of C$457 million.
"The disappointing results of the quarter compelled us to accelerate the deployment of a comprehensive strategic action plan," Chief Executive Terry Matthews said in a statement.
Newbridge said on Thursday it has not ruled out putting itself up for sale. A source close to the company said that Matthews told staff during a meeting on Thursday that in six months Newbridge could be part of another company, but that it intended to remain independent.
A financial advisor is now working with Newbridge to explore all options, including selling off the company, Flynn told analysts during a conference call late on Thursday.
"It's like you've put your house on the market," said Duncan Stewart, fund manager at Tera Capital Corp. in Toronto, of the financial advisor. "The open house sign is on the front lawn and you've changed the potpourri in all the washrooms."
An ambitious timetable has been set for the company's overhaul. Job cuts will be complete by month's end, volume manufacturing will be outsourced in four months, with an announcement that services will be outsourced expected in days.
"We're going to have to build the reputation of our company back one quarter at a time," said Flynn.
That plan does not address Newbridge's key challenge, said Paul Sagawa, analyst at Sanford Bernstein & Co. in New York. Sales for the firm's flagship asynchronous transfer mode (ATM) technology have slowed in North America as Newbridge readies to release a new high-speed product.
Newbridge may not be able to count any meaningful revenue from that next-generation 50-gigabit switch, which sends multimedia data zipping around networks at high speeds, for as long as nine to 12 months, Sagawa said.
Lab trials of the product are expected to begin in March with sales starting in the next quarter, said Ed Ogonek, head of switching products.
"It's high time that Newbridge consider the value of a takeout," said Sagawa. "Right now, Newbridge is in a position that no matter how good the product is, the customer's always going to be doubting their ability to execute over the expected lifetime of a system, which is five years or more."
Newbridge faces tough competition from several network equipment giants including Lucent Technologies Inc. (LU), Nortel Networks Corp. (NT) and Cisco Systems Inc. (CSCO), he said.
"Those companies can offer a much broader product line, those companies can offer a much more stable relationship with a customers, those companies can make promises that stick with regard to future developments and support," Sagawa said.
Also on Thursday a federal jury in Delaware awarded Lucent $9.6 million in patent infringement damages against Newbridge in an interim ruling. That award, however, will not be paid out for some time, if ever, pending further legal proceedings.
"We are clearly disappointed with the decision. This is by no means the end of this matter. There will be a further trial at a later time," Newbridge general counsel Peter Nadeau told Reuters. |
