Newbridge to Cut Over 10% of Workforce in Revamp
By Carolyn Koo
TheStreet.com/NYTimes.com Staff Reporter
11/18/99 8:02 PM ET
Newbridge Networks (NN:NYSE) announced late Thursday that it would cut over 10% of its workforce in a huge
restructuring effort, as the company posted second-quarter earnings that were as weak as Wall Street expected.
Newbridge also lost a patents lawsuit brought against it by Lucent Technologies (LU:NYSE). And speculation grew
that the Canadian networking-solutions company was a takeover candidate.
Newbridge's stock soared 27% Thursday, gaining 5 1/16 to 24. About 4 points of that gain came after the 4 p.m. EST
close of regular trading, when the company announced the job cuts and held a conference call with analysts.
"The disappointing results of the quarter compelled us to accelerate the deployment of a comprehensive strategic
action plan," said Terence Matthews, chairman and chief executive, in a statement.
That plan includes "headcount reductions totaling more than 10% (more than 600 employees) of the company's
workforce," the firm said, all in the name of cutting overhead costs, streamlining operations and focussing on the
company's strongest products. Those layoffs are slated to be completed by the end of November.
Still, Wall Street sought more details. "What are their plans for digging themselves out of this hole?" asked David
Powers, an analyst at Edward Jones. "What is the status for the rollout of their new products and when will that have
a material impact on the company's financial position?" Powers rates Newbridge a hold, and his firm has done no
underwriting for the company.
In a conference call to analysts, Pearse Flynn, the company's president and chief operating officer, identified
Newbridge's three main problems: critical new products that are just coming to market, difficulties in North America,
and a cost structure that is not within industry norms.
Likely in response to the problems in North America, Giulio Giantruco, executive vice president of the North and
South America region, resigned on Wednesday. This follows the resignation of Alan Lutz, the former president and
chief operating officer, at the beginning of the month. Gianturco will be replaced by Edward Minshull, who worked
with Newbridge's Europe, Middle East and Africa region.
Rumors that Newbridge will be taken over continue, and in a statement, Newbridge further fanned the speculation
when Matthews said: "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."
In the conference call to analysts, Flynn confirmed that "all strategic options" includes a possible takeover and that
the company is "working with a Tier One financial adviser" to look at this issue. The likeliest candidates mentioned
as takeover companies are Ericsson (ERICY:Nasdaq) and Alcatel Alsthom.
A takeover may make sense for Newbridge, since it has been stumbling for a long time in executing its business
plan, while at the same time possessing valuable assets.
Also Thursday, a federal jury upheld the validity of five Lucent patents, saying they were infringed by some of the
products made by Newbridge. Lucent had asked for $12 million in damages, but in the end was awarded $9.6
million. During the conference call with analysts, Newbridge responded thusly: "This is an interim ruling that only
considers part of our case. We are confident that the $9.6 million won't survive the rest of the process."
With all this news, earnings appeared to be the least of shareholders' worries. "We already knew the quarter was
going to be a disaster," Powers said. On Nov. 2, the company warned that its second-quarter earnings would come
in well below Wall Street's forecasts, its seventh such warning in the last 11 quarters. At that time, Newbridge
projected preliminary earnings of 8 to 10 U.S. cents a share, excluding the effect of items related to acquisitions and
nonrecurring items. The consensus estimate of analysts polled by First Call/Thomson Financial was then 20 U.S.
cents a share. That estimate was revised to 9 cents after the company's warning.
Newbridge barely met that dire projection. For the second quarter of fiscal 2000 ended Oct. 31, net earnings fell to
C$21.5 million, or 8 U.S. cents a diluted share, from C$48.1 million, or 18 U.S. cents a share, a year earlier. Revenue
rose to C$481 million from C$457 million a year ago. |
