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Technology Stocks : Newbridge Networks

NN 11.36

-9.3%

3:59 PM EST

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To: Hassan Lakhani who wrote (5107)	6/12/1998 11:54:00 AM
From: Doug	Read Replies (1) of 18016

Hassan: That rebuttal is logically correct. However because of the nature of NN's business, the evaluation of its revenue/income growth is more complicated. I shall try to present the problems of NN in a brief and concise way as I see it. NN is a Company that has a revenue of $1.6b that needs to grow both revenue and income by 20% annually. Currently 40% of its revenue is derived from circuit switching products.Due to superior technology, the circuit switching market in N.America and Europe is getting extinct. A shrinking market exists in Latin America and Asia. The balance of NN's revenue viz 60% comes from Packet Switching products. In the past NN had a commanding lead in this technology. With time , others have joined in. At this critical phase, Packet switching Sales has to increase by $0.3b and in addition make up for any shortfall in circuit switch Sales. If this shortfall is 20% (highly probable), NN has to make up another $0.13b thru Packet sales. Hence the targeted sales for Packet switching products currently near $0.96b has to be ramped up to $1.39b viz a near 40% increase. This will have to be maintained if Packet sales continue to decline. Historically such increases come when Companies present outstanding technologies and have superb sales and Marketing Staff. Nowadays,any technology lead is short lived. Since others also have similar products, it seems that the future depends on a quick expansion of Sales. If Sales to OEM's for Carriers and direct sales to O.E.M's can show increases, I am sure the market will reward NN. Currently whilst many may consider that the market is punishing NN, it may well be due to them making a more realistic valuation.

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