Bloomberg - Bay to Restructure Business Units to Reduce Costs (Update1)
Bloomberg News
May 29, 1998, 11:40 a.m. PT
Bay to Restructure Business Units to Reduce Costs (Update1)
(Adds details on restructuring and takeover interest.)
Santa Clara, California, May 29 (Bloomberg) -- Bay Networks
Inc. will restructure its business units to cut costs amid
concern the struggling computer networking company will have
difficulty meeting earnings expectations for the current quarter.
Bay will combine its Enterprise Business Group, which sells
switches and other equipment used by large corporations to link
computers into networks, with its Internet and Telecom Business
Group, which sells similar gear to phone companies and Internet
service providers. Shares of Bay fell 5/8 to 27 3/4 in
midafternoon trading.
The No. 3 networking company has been the object of takeover
interest from Northern Telecom Ltd. and other phone equipment
makers who want to enter the networking market. Bay saw profits
fall last quarter amid stiff price competition from Cisco Systems
Inc. and 3Com Corp. The company is looking to a powerful new
switch, the Accelar, to boost profits, yet many analysts believe
it may not be enough to turn the company around.
''They're going to need strong Accelar sales in the back end
(of the June quarter) to make it,'' said Vijay Rajamani, an
analyst with Cowen & Co. who rates Bay ''buy.''
The company is expected to earn 12 cents a share for the
quarter ending in June, based on a survey of analysts by IBES
International Inc. Bay will report earnings for its fiscal fourth
quarter ending in June in the third week of July.
Bay spokesman Jeff Ferry confirmed a report about the
restructuring that appeared in the online version of PC Week
magazine.
The company will combine the sales and technical personnel
of the two groups ''to improve efficiencies in developing and
selling (Bay) products,'' Ferry said.
No immediate job cuts are expected from the restructuring,
said Ferry. He declined to comment on any future job cuts at Bay
or whether the restructuring was related to any possible
acquisition.
Earlier this month several analysts said Bay rejected a
Northern Telecom takeover offer as too low.
A Northern Telecom spokesman declined to comment on any
specific takeover rumors but added the company was ''evaluating''
several data networking companies.
''We evaluate them all the time. It's part of our
business,'' Northern Telecom spokesman Peter Janecek said.
Bay Chief Executive David House told analysts at a meeting
earlier this month he would leave the decision to accept any
offer up to Bay shareholders. Other companies that may be
interested in Bay include Lucent Technologies Inc. and Ericsson
AB, Sweden's largest company.
Sven-Christer Nilsson, who recently took over as chief
executive of LM Ericsson AB, said earlier this month that the
Swedish telecommunications company is looking for partners among
hardware and software companies related to data-communications
products.
''We are looking to expand in data-communications and we are
primarily looking at small to medium-sized companies,'' said Lars
Oestlund, a spokesman at Ericsson.
A restructuring may help Bay cut costs and become more
competitive regardless of whether or not it is purchased.
''They need to become more efficient either way,'' said
Craig Johnson, an analyst with the PITA Group in Portland,
Oregon.
--John Shinal in the San Francisco newsroom (415) 912-2995 with |
