Wednesday 26 August 1998
Newbridge revenues, earnings
down
Network giant shows signs of strong recovery
James Bagnall
The Ottawa Citizen
Newbridge Networks Corp.
sent out several strong signals
yesterday that it is close to
putting the UB Networks
debacle behind it.
The Kanata-based
manufacturer revealed it has
signed a three-year deal --
worth an estimated $300 million
--to supply SBC
Communications Inc. with a wide range of communications gear.
Aside from providing a big financial boost for subsequent quarters, the SBC
deal is an important endorsement of Newbridge's next-generation products,
which are based on asynchronous transfer mode technology.
SBC, one of the largest regional Bell operating companies in the U.S., joins
BT of Britain and MCI Communications Corp. of Washington, D.C., among
others, in selecting Newbridge as a primary supplier of core data networks.
Newbridge's new president and chief operating officer, Alan Lutz, also
intimated yesterday that the company's sales of high-capacity wireless systems
were much better than expected.
"It's a bigger opportunity than we thought it was," he told financial analysts.
"We think we've got a tiger by the tail."
Mr. Lutz offered these thoughts during a conference call to discuss
Newbridge's first quarter results, which were released yesterday following the
close of trading.
While the overall numbers remain disappointing, they disguise a number of
important trends that favour Newbridge.
For starters, growth in the company's two main product lines has nearly made
up for plummeting sales at UB Networks, the California-based computer
networking firm Newbridge acquired early in 1997 for $147 million.
Newbridge posted sales of $426.1 million for its first fiscal quarter ended
Aug. 2, down about two per cent from the same quarter a year earlier.
Excluding the impact of UB Networks, year-over-year growth would have
been 14 per cent.
Newbridge returned to solid profits for the first time in three quarters, but
these remain well below the levels achieved prior to the UB Networks
purchase. Second-quarter earnings were $35.5 million, or 20 cents per share
-- a 44.8-per-cent drop from the same quarter a year earlier.
In U.S. dollar terms, first-quarter earnings were 14 cents per share, bang on
the mean estimate of 19 analysts surveyed by IBES International Inc.
"We've made a very strong first step forward in transitioning the company,"
Mr. Lutz said.
With sales of UB Networks (now part of Newbridge's computer networking
group) having pretty well bottomed out at $7 million in the first quarter,
Newbridge can now concentrate on its more robust products.
Overall, new orders topped shipments for the eighth straight quarter,
producing a near record backlog. Sales of the company's flagship switch,
known as the MainStreetXpress 36170, were up 75 per cent, compared with
the first quarter last year.
This, in turn, has helped to transform the nature of the firm's business.
Newbridge's newer-generation products, which are based on packet
technologies such as asynchronous transfer mode and frame relay, generated
$243 million in revenue and now represent about 57 per cent of the firm's
total.
The ratio would have been higher but for the surprisingly strong showing in the
quarter of Newbridge's older product line, which is based on time division
multiplexing technology. TDM sales were $183 million, or $30 million higher
than the consensus forecast, according to Robert MacLellan, an analyst with
Toronto-based Kearns Capital.
However, the TDM portion of Newbridge's business seems destined to slide
further. In part, this is because of the firm's recent breakthrough in
high-capacity wireless contracts. Newbridge said last week that it had won a
pair of contracts to supply roughly $550 million worth of wireless
communications systems to Ottawa-based MaxLink Communications Inc.
and WIC Connexus, a unit of WIC Western International Communications
Ltd. of Vancouver.
The systems will be based on ATM technology and could provide Newbridge
with a big advantage in pursuing similar business in the United States.
Newbridge chairman Terence Matthews said yesterday his company is
actively marketing its wireless experience to the nearly 50 U.S. firms that have
won licences to provide a wireless service known in Canada as local
multipoint communications systems.
Newbridge's victories here were a bit of a sore point with at least one analyst,
who queried whether Mr. Lutz's earlier revenue forecasts had included some
provision for the two Canadian wireless victories. Mr. Lutz's response: "I'm
sorry we pulled a surprise. We've just landed the business in the last two
weeks, so you've got to cut us a little bit of slack."
This is known in the business as a positive surprise. And it's been several
quarters since Newbridge produced one. The underlying message yesterday
was to expect more. |
