Newbridge pounded Takeover talk, profit warning prompts investors to
flee
By KEVIN BELL, Business Editor, Ottawa Sun
IT WAS a rough-and-tumble day for Newbridge Networks
Corp. yesterday as investors punished the company for yet
another warning of a profit shortfall.
The stock tumbled by almost 22% on the Toronto Stock
Exchange, but analysts said the day could have been rougher for
the company. Renewed speculation that Newbridge is more
attractive as a takeover target because it is cheaper likely
softened the blow, they said.
"I was expecting more to come off" the stock price, said Rob
Mac- Lellan, an analyst with CT Securities. "It could weaken
substantially over the next couple of days."
The share price crashed by $11.65 to close at $41.95 after
heavy trading on the Toronto Stock Exchange. At one point,
shares changed hands at $39.05. "I think the only reason it is not
off even more is the possibility that a takeover looms ever larger
here," said Paul Sagawa, an analyst with Sanford C. Bernstein &
Co.
Newbridge reported late Tuesday that it expects its
fourth-quarter profits will be as much as 9cents a share below
analysts' consensus estimates of 21cents. It was the fifth time in
eight quarters it has warned it would not meet expectations.
The company said orders for its networking products were
strong, but it could not make and ship enough communications
equipment to meet demand.
CEO Alan Lutz said the company needs one or two quarters to
fix the problem and catch up with a backlog of orders, but some
analysts were skeptical.
"I don't think there are short-term manufacturing problems,"
Sagawa said. "This is a fundamental manufacturing and
product-line problem. It can't deliver its products to customers
on a timely basis."
Duncan Stewart, a partner at Tera Capital Corp., said people
will be calling for Lutz's head.
"It may not be his fault, but it is certainly his responsibility."
But Patrick Houghton, an analyst with Sutro & Co., said
investors are underestimating the company's strengths.
Newbridge is reporting a significant increase in orders for its
ATM products, which should eventually translate into higher
revenue, he said.
But Newbridge's late admission that it is having trouble turning
orders into deliverable goods is a serious worry, he said.
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