Investors beat up on Newbridge
Jill Vardy
Financial Post
OTTAWA - Shares in Newbridge Networks Corp. fell 22%
yesterday after the company warned Tuesday of much lower than
expected earnings in its fourth quarter.
Stock in the Ottawa-based maker of telecommunications equipment
company plunged $11.65 to $41.95 in Toronto and $8 1/16 to
$28.75 (US) in New York on news that production problems
prevented it from meeting all the orders for its equipment.
Newbridge now estimates that it will earn 12¢ to 14¢ (US) a share
on revenue of about $460-million in the fourth quarter, which ended
on Sunday.
At least five analysts reduced their recommendations on the stock,
despite company assurances that orders for its flagship
telecommunications switches jumped 50% in the quarter alone.
A whole series of problems combined to prevent Newbridge from
filling those orders, said Alan Lutz, president and chief operating
officer.
He said the company will solve those problems over the next two
quarters. Details of those adjustments and the final fourth quarter
numbers are to be available on June 1.
Mr. Lutz told analysts in a conference call Tuesday that he was
sorry his company was forced to issue the early earnings warning --
the fifth in its past eight quarters.
"We're deeply disappointed that this situation has occurred and
frankly on behalf of the management team I apologize for any
impact on your credibility with your customers that this
pre-announcement causes," he told the analysts.
Some analysts sounded frustrated that Newbridge, starting the
current quarter with millions in unfilled orders, could not paint a
more optimistic picture for the early part of this fiscal year.
"Shouldn't you come out fighting instead of trying to be
conservative? If it really is good news we want to hear that," David
Beck, analysts at TD Securities, told Mr. Lutz on the conference
call.
Mr. Lutz's view: "Put yourself in my position. I just had the hell beat
out of me."
Others sought solace in the signs that demand for Newbridge's
asynchronous transfer mode (ATM) equipment is stronger than
predicted.
"There are three legs to this stool: demand, products to address that
demand, and execution. The bad news is that execution is a real
problem. The good news is that the other legs of the stool look
pretty strong," said Paul Silverstein, analyst at Banc-America
Robertson Stephens in New York.
Mr. Silverstein said the company has a real and serious production
problems. But he's retaining his 'buy' recommendation on the stock,
assuming those problems will be fixed.
"This is a serious problem. It's not trivial. But if you got to choose
your poison, this would be the problem to pick," he said.
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