Newbridge reveals plan for turnaround
MICHAEL MACDONALD
Ottawa Citizen
TORONTO (CP) - Newbridge Networks, one of Canada's leading high-tech
companies, unveiled a tough restructuring plan late Thursday that includes cutting
at least 600 jobs - about 10 per cent of its global workforce. Newbridge president
Pearse Flynn also confirmed an investment firm has been called in to explore the
possibility of putting the company on the auction block.
"I would say that selling the company is a strategic option," he told analysts during
a telephone conference call after the company released its second-quarter results.
Flynn said Newbridge would cut costs by "streamlining" operations, particularly in
administration, and outsourcing some manufacturing and customer service
operations.
Newbridge has consistently failed to meet market expectations because three
critical, new products have yet to come to market, sales are slipping in the United
States and costs remain higher than the industry average, Flynn said.
"We want to play in the areas we can win," he said, adding that research and
development spending will be focused on a smaller number of areas.
"We understand that we're going to have to build the reputation of this company
back one quarter at a time."
Layoff notices will be issued before the end of the month and most outsourcing
arrangements will be completed by the end of the year.
The Ottawa-area high-tech company reported revenue of $481 million US for the
quarter ended Oct. 31, with net earnings at $302 million US or eight cents US per
share. However, most of that came from disposal of investments. Operating
profits were a meagre $5 million, down from $23.8 million last year.
A recent survey of investment analysts suggested they were expecting much
higher profits.
"The disappointing results of the quarter compelled us to accelerate the deployment
of a comprehensive strategic action plan," said Terry Matthews, Newbridge's
founder and chief executive.
"The principal objective is to leverage the power of our industry leading products
to create shareholder value. To achieve this objective, we are fully committed to
considering all strategic options."
A loud chorus of analysts and investors have been pushing the company to find a
buyer. But Matthews, who owns 20 per cent of Newbridge's shares, is thought to
be reluctant about giving up his stake in the company he created.
In the meantime, Matthews is hoping the introduction of a new line of
next-generation networking products during the third quarter will revive the
company's flagging fortunes.
The corporate shakeup follows the embattled company's failure to meet stock
market expectations during six of the previous 10 fiscal quarters.
Newbridge, based in Kanata, Ont., has been the subject of several waves of
takeover rumours for the last two years. The company, which employs about
6,000 worldwide, is best known for the sophisticated switching gear it makes for
telecom operators.
Earlier this month, Newbridge stock bottomed out at $20.60, a 52-week low. In
January, the company's shares were trading above $60. They peaked at $95 two
years ago.
The latest stock slide followed yet another profit warning on Nov. 2. That
prompted the resignation of company president Alan Lutz, who was quickly
replaced by Flynn, Newbridge's general manager for Europe, the Middle East and
Africa.
The company said its second-quarter profit was less than half the expected level.
However, a recent series of published reports suggesting an imminent takeover
have boosted the company's share price by more than 40 per cent since the
beginning of the month.
Newbridge closed at $29.35 Thursday, up $1.50 on the Toronto stock market.
The company has steadfastly refused to talk about the takeover rumours, which
have included speculation that Ericsson of Sweden has considered buying a stake
in the company.
Newbridge produces so-called wide-area networks, switches and wireless
products for Internet service providers, phone companies, cable TV and corporate
clients in more than 100 countries.
The company said it would sharpen its product line by focusing on ATM switches,
and broadband wireless and digital subscriber line products.
Some sales and field service offices will be closed as the company lines up a
strategic partner to handle some of those duties. |
