Newbridge loses bulk of multimillion-dollar contract
Friday, February 12, 1999
TYLER HAMILTON
Technology Reporter
Newbridge Networks Corp. has lost most of an estimated $333-million contract with WIC
Connexus that was to be its springboard into a lucrative U.S. market and a major plank in its push
to diversify its product line.
Industry sources say Cisco Systems Inc. has won most, if not all, of the contract to supply
equipment for Connexus' high-capacity wireless network. Newbridge was awarded its estimated
two-thirds share of the four-year, $500-million contract -- one of two in that product line -- last
August.
San Jose, Calif.-based Cisco supplies telecommunications networking equipment to Shaw
Communications Inc., which owns 52 per cent of WIC Western International Communications
Ltd., the parent company of Connexus.
Newbridge spokesman Paul Goyette acknowledged that his company's relationship with Connexus
is changing. But he said Kanata, Ont.-based Newbridge will still supply a portion of the equipment
and will bid for future contracts as Connexus builds its network.
Another Newbridge spokesman said the company had not calculated the contract's value into its
revenue forecast. At the time of the Connexus deal in August, Newbridge announced a similar
contract with MaxLink Communications Inc. worth $400-million, although Newbridge was to
receive only about two-thirds of that amount.
The Connexus contract would be worth about 5 per cent of Newbridge's total revenue, based on
its latest quarter.
While Newbridge still has the MaxLink deal in hand, analysts say the loss of the Connexus
business is a serious blow for the company, which has been looking for ways to diversify its
product line, primarily equipment for land-based communication networks.
Richard Woo, a telecommunications analyst with Thomson Kernaghan & Co. in Montreal, said
letting such a large contract slip through Newbridge's fingers takes credibility away from its
business strategy. "They relied on those two deals as a credibility booster."
The loss also raises questions about Newbridge's future revenue growth. Sales of its earliest
product lines have slowed considerably. The company issued a surprise earnings warning earlier
this month, blaming sluggish sales in Asia and Latin America.
Connexus officials did not return calls yesterday.
Connexus selected Newbridge, along with Alcatel SA, in August as its leading provider of
equipment for its high-capacity wireless network -- which, when up and running, will be capable of
providing telephone, data and Internet services over the same wireless link.
Newbridge was going to use the Connexus and MaxLink deals to showcase its technology in the
U.S., which recently licenced companies to roll out similar networks.
Joel Bell, deputy chairman of MaxLink, said his company's arrangement with Newbridge is still
solid and that the roll-out of MaxLink's national wireless network is right on schedule.
"No one is in a mature state here, but we're quite happy," he said.
Another analyst, who wished to remain nameless, said Connexus may have chosen Cisco over
Newbridge because of problems with the Canadian company's technology.
He said Connexus spent about $30-million trying to get the Newbridge technology to work, but
scrapped everything because engineers couldn't find a way to break down the wireless "pipe" into
smaller channels that carry their own streams of data.
Mr. Goyette denied that there was a problem with Newbridge's technology and said the capability
to "channelize" the wireless links is available. He added that MaxLink, however, does not have that
capability currently built into its network.
The Connexus and MaxLink networks -- dubbed LMCS (Local Multipoint Communications
Systems) -- together have been touted as the third lane on the information highway. LMCS uses
high-frequency radio waves to replace fibre-optic lines and has been touted as a future alternative
to both local telephone and cable television companies.
But some industry experts say LMCS -- and the companies that have been licenced by Industry
Canada to roll it out -- just hasn't fulfilled its promises.
"They've taken so long to get it off the ground," said Liz Anglus, an analyst with Angus
TeleManagement in Ajax, Ont. "The head start they thought they had is rapidly dwindling."
Newbridge shares were buoyant most of the day, but fell sharply in the last hour of trading on the
Toronto Stock Exchange. The stock dropped to $40 at the close from $41.95 at 3 p.m., with
nearly a million shares changing hands during that time.
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