Newbridge reports disappointing results in third quarter
Wednesday, February 24, 1999
SIMON TUCK
Technology Reporter
Ottawa -- Newbridge Networks Corp. reported disappointing third-quarter results yesterday,
leaving its management team with the familiar problem of rebuilding the company's credibility with
the financial community.
Earlier this month, the Kanata, Ont.-based communications equipment company cautioned it
would miss third-quarter profit expectations -- the sixth warning it has made in the past nine
quarters.
Analysts are irked at these last-minute surprises, and say they want more reliable guidance from
Newbridge's new, more experienced management team. But that hope was dashed when the
company warned in early February that it would miss profit expectations by about 5 cents a share.
The shortfall was confirmed yesterday when the company announced a profit of $46.2-million or
26 cents a share on revenue of $451-million for the quarter ended Jan. 1. That compares with a
profit of $17.1-million or 10 cents on $359-million in the year-earlier period.
The shortfall from profit expectations means that Bay Street's honeymoon with Newbridge's new
bosses, which started in June with the hiring of new president and chief operating officer Alan
Lutz, is over, some analysts say.
Meanwhile, Mr. Lutz is predicting company earnings will grow about 50 per cent during the next
fiscal year. "This company is now to the point where it knows what it wants to be when it grows
up," he told analysts during a teleconference yesterday.
He said Newbridge is entering a new phase that will be based around its flagship asynchronous
transfer mode (ATM) technology, the company's leading engine of growth, and trying to gain a
strong presence in the Internet protocol (IP) market.
Jim Kedersha, an analyst with SG Cowen Securities Corp. in Boston, said Newbridge still must
learn to set realistic expectations. "It's frustrating as hell because they never make the numbers, but
I believe in this company," he said. "[The profit warning] didn't have to happen.
"They don't gain any real benefit by letting expectations get out of hand," said Mark Lucey of
Kearns Capital Ltd. in Toronto. "But, to be fair, I think the new team is executing better than the
old team."
The new team also announced Monday it is suing Vancouver-based WIC Connexusand WIC
Western International Communications Ltd. for up to $900-million for the loss of a major
contract.
Newbridge shares fell 5.6 per cent or $2.40 to $40.45 yesterday on the Toronto Stock Exchange.
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