05:58 PM ET 12/08/99
Canada's Newbridge nails test time for new gear
By Susan Taylor
OTTAWA, Dec 8 (Reuters) - Canadian network gear firm
Newbridge Networks Corp. is shipping a crucial
new high-speed switch for customer testing this week, beating
some analysts' expectations and breathing new hope into the
troubled company.
Ottawa-area based Newbridge, on takeover watch since
revealing on November 18 that it was open to offers, confirmed
on Wednesday that it will announce next week that its newest
switch is being put through its paces by customers.
Sources said San Antonio, Texas-based SBC Communications
Inc. , the largest U.S. local phone company, and British
Telecommunications Plc are testing the equipment.
The timing is critical for Newbridge, which some analysts
suggest is losing U.S. market share for its flagship
Asynchronous Transfer Mode (ATM) technology to arch-rival
Lucent Technologies Inc. .
ATM technology sends multimedia data across networks at
high speeds.
Although the news does not lower the urgency for Newbridge
to find a buyer, it does make the company a more attractive
takeover candidate, analysts said.
If Newbridge can quickly move its new 50-gigabit ATM switch
-- which will be the swiftest on the market -- from testing to
general availability, the company could gain an important
advantage over competitors.
The switch has a capacity of 50 billion bits of data per
second, dramatically outpacing the closest competitors which
have 25-gigabit switches.
"We are now expecting them to ship over a dozen switches
for revenue recognition in test networks by the end of the
quarter," said Rob MacLellan, analyst at CT Securities in
Toronto. The sales would likely amount to less than C$10
million for the quarter which closes on January 31, he added.
"Our feeling was that we wouldn't see any additional
revenue recognition on the switch until next quarter,"
MacLellan said. "So it looks like there is very significant
underlying demand."
Analysts began asking last month if Newbridge could hit its
target to start trials in late November. Doubts grew when the
head of switching products left Newbridge soon after the
November 2 departure of President Alan Lutz.
Testing now will be seen by the market as a home run for
Newbridge, which has suffered several recent strike-outs.
"Having the switch released and having revenue recognition,
albeit a very modest amount, effectively one quarter earlier
than expected, is a nice boost to people that may have had some
doubts of whether the switch was real or not," MacLellan said.
The new product is seen as an important kick start to
sales, which were hit with the firm's sixth earnings warning in
10 quarters on November 2.
Since then, the company has moved to cut costs to 36
percent of sales from 46 percent. Newbridge cut 700 jobs late
last month.
"We've aligned our resources to success," Newbridge's new
President Pearse Flynn said during a press conference on
November 24. "The U.S. market is demanding the bigger products
faster, so I want to get these products out as fast as I can."
Newbridge's 50-gigabit switch would beat ATM gear from
competitors including Nortel Networks Corp, ,
Cisco Systems Inc. and Lucent.
"The faster that switch hits the market with some momentum,
the faster they can offset the slowdown in sales in the
existing 36170 switch and thereby maybe boost their bottom line
ahead of expectations for next year," MacLellan said.
($1=$1.48 Canadian)
((Susan Taylor, Reuters Ottawa Newsroom |
