Canada's Newbridge shocks with Q3 shortfall warning
11:15 p.m. Feb 02, 1998 Eastern
TORONTO (Reuters) - Newbridge Networks Corp. shocked investors on Monday
with news that its third-quarter profit would be much lower than expected and it
plans to take an unspecified restructuring charge for its money-losing U.S.-based
UB Networks unit.
Excluding one-time charges and gains, the computer networking firm said it would
earn 7 cents a share, versus forecasts of 26 cents for the quarter ended Feb. 1.
In last year's third quarter, Newbridge earned C36 cents a share. The Canadian
dollar is currently trading at 68.82 U.S. cents. Newbridge now reports in U.S.
dollars.
Newbridge, based near Ottawa, said its restructuring charge for UB Networks
would include severance payments, costs to close facilities, an inventory writedown,
deferred tax assets and a write-off of good will.
Newbridge trading was halted in Toronto and New York before the closing bell.
Before the halt, the stock traded at a 52-week low of C$37.50 in Toronto and
$25.50 on Wall Street.
Analyst Rob McLellan of SBC Warburg Dillon Read, who downgraded his rating
on the stock to neutral from buy on Jan. 22, said the warning meant Newbridge
would post three disappointing quarters in a row. ''The magnitude of the shortfall is
going to shock a lot of people,'' he said.
Another analyst, who declined to be identified, added: ''The stock's going to drop by
10 (Canadian) dollars tomorrow. It's going to go down to 20 (dollars) or more.''
''You won't find a single analyst, even the most bearish, who would have foreseen
such a drop,'' he said.
Newbridge said it would post details and final results for the third quarter on Feb.
24.
The company added that quarterly revenues are expected to reach C$360 million
($247 million). That number is 25 percent below previous predictions, the analyst
said.
Newbridge said the expected shortfall arose from a significant decline in sales of its
older technology called time division multiplexer (TDM) systems.
In a news release, Newbridge Chief Executive Terence Matthews said: ''The third
quarter was a challenging period.''
But now that management settled the UB Networks problem, it can devote its
attention to other areas, he said.
''The actions being taken will enable the company to refocus on the enterprise
market from our traditional position of strength as a WAN (wide area network)
equipment vendor,'' Matthews said.
McLellan said Newbridge could transfer some UB marketing rights
to alliance partner 3Com Corp. but any fees paid would pale in
comparison to the $92 million price Newbridge paid for UB Networks
last January. REUTERS
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