NEWBRIDGE SHARES SINK FURTHER
'SHOW ME THE MONEY,' ANALYST URGES HI-TECH GIANT
February 26, 1998
By SUSAN TAYLOR -- Ottawa Sun
Newbridge Networks shares took it on the chin yesterday as
analysts predicted a tough battle back to glory days.
Stock dropped 85› to close at $31.15 as 1.2 million shares
traded hands on the Toronto Stock Exchange. In early October,
shares were selling at $95.
After failing to meet projections for the last three quarters,
Newbridge faces enormous challenges over the coming months.
Increased competition from billion-dollar telecommunications
giants such as Cisco, Lucent and Nortel make it more difficult to
win contracts.
"It's going to be a Jerry Maguire story -- show me the money,"
said Josef Vejvoda, an analyst with Loewen Ondaatje
McCutcheon. "They're going to have to show some earnings."
Still, announcements of sales will only stabilize share value or
move it forward by "baby steps," Vejvoda said. A massive
unexpected sale would be needed to send the value soaring.
"The consensus on the street is a hold rating until there's some
good news," said Richard Woo, an analyst with Thomson,
Kernaghan & Co. Ltd.
But analysts point out Newbridge's historic market strongholds
are shrinking.
Once robust sales of time division multiplexing (TDM) products,
which combine a variety of digital data on the same phone line,
have slumped 32% from the second quarter. Newbridge has said
it expects those sales to rebound in the fourth quarter, but
analysts say there's no proof that will happen.
A bright spot is doubled revenue in asynchronous transfer mode
(ATM) products for wide area networks, which divide digital
data for transport over a network.
But that leaves Newbridge in a weakened position with few
strengths to draw from, analysts say.
"If there is a hiccup, or delay in orders ... the stock will
implode," said Rob MacLellan, an analyst with SBC Warburg
Dillon Read.
It's not expected Newbridge shares will repeat a nosedive
performance from earlier this month when the company warned
its profit would plunge 72% in the third quarter.
Stock value dropped $8.75 in value Feb. 4 on the TSE, closing
at a 52-week low of $28.75 as an enormous 11.4 million shares
were traded.
"We probably won't see another free fall," said Woo. "If it was
going to crash, it would have happened by now."
Meantime, rumors have been circulating for two weeks that the
firm is now a takeover target for Siemens, which with Newbridge
has an alliance.
"It would have to be a hostile takeover," said Vejvoda. "I don't
think (CEO) Terry (Matthews) would give it up that easily."
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