Phase 2
The Ottawa Citizen
When Newbridge Networks
Corp. shareholders gather today
at the Westin Hotel for the
company's annual general
meeting, they'll be passing
judgment on the performance of
Alan Lutz, the president and
chief operating officer since the
summer of 1998.
The former senior executive
with Compaq Computer Corp.
and Nortel Networks Corp. has
clearly been given a free hand to
make fundamental changes. Mr.
Lutz has restructured
Newbridge's R&D group,
revamped the company's
manufacturing operation, and
radically change the face of the
firm's senior management
group.
The Lutz revolution has at times
been messy -- Newbridge fell
short during two of the five
financial quarters for which Mr.
Lutz has been responsible.
Question marks about the
company's ability to consistently
deliver good results are helping
to hold Newbridge's share price
down below $40 -- less than
half the peak reached back in
the fall of 1997.
Mr. Lutz maintains during an
interview with The Citizen's
associate business editor, James
Bagnall, that the first phase of
Newbridge's "transformation" is
now complete. Now it's time,
he says, to turn the firm's new
leaders, products and strategies
into "a highly refined fighting
unit." The following is an edited digest of the interview.
Q Since you were appointed chief operating officer last year, you've had to issue
two warnings about earnings not meeting expectations. What extra pressures did
you feel from the board or senior management?
A Most of the pressure I put on myself. My job requires me to be the focal point.
And it's actually quite an unpleasant experience to run a conference call with a
couple of hundred sell-side analysts, most of whom you know because of
previous relationships, and have to tell them that you're going to significantly
disappoint them.
Q Do you still have the confidence of the board?
A I believe I do. Nobody came up to me and said, "Look Lutz, if you don't get
this done, you're gone." If there's a protracted period of lack of performance
then I would fully expect some new person to be brought in. Am I fearful of
losing my job? No.
QYou're job is chief operating officer. Do you have an understanding with
company founder Terence Matthews about the circumstances under which you
would take over his role as chief executive?
A Generally speaking, yes.
Q How would you characterize your relationship with Mr. Matthews?
A We both respect each other quite a bit. We both recognize we're different
people. The relationship has been strong enough for the people who observe us
to conclude that we work together. Terry would favor more stability than I do.
I'm probably more comfortable with some notion of controlled chaos.
Q You mentioned during a spring speech that you and Mr. Matthews had had
only one serious disagreement, and that was over your decision to fire (former
senior executive) Scott Marshall. Were there repercussions after Mr. Marshall
moved to your archrival Cisco Systems?
AThat he went to Cisco, I find completely and totally logical. But I learned a
lesson. The people in Ottawa didn't mind that Scott Marshall left. They did mind
that we did not adequately recognize his contribution to the company while he
was here. Now there's more focus on recognizing the employee's contribution
when changes are made.
Q Only four of Newbridge's top 16 executives occupy the same job as when you
came on board. Did you intend from day one to make so many senior
management changes?
A. Yes. That's the reason I came. It was a verbal contract between Terry and me
and the board and me.
Q. How effective have the changes been, especially on the marketing side?
A. There are little signs that feel very good. For example, it's easy for Cisco to
organize and participate in an industry conference and spend millions of dollars
trying to teach industry pundits their point of view. It's not easy for us to match
that. But, at a recent conference organized by Cisco, Satjiv (Chahil, Newbridge's
new executive vice-president of global marketing) hired a plane and great big
banner and the plane kept flying over the golf course near the conference. The
banner said www.newbridge.com. It become the talk of the show, even though
the show was sponsored by Cisco. The whole thing cost $2,000.
A. So Newbridge's marketing is becoming smarter?
Q. We're becoming very California-like in our marketing organization. It will be
another year's worth of time to invest in this, but the progress so far has been
fabulous. Our annual report is different. Our image is different. Even the slides
we use internally have changed. Satjiv will talk (today) about our e-war, with
everything being oriented towards communicating with customers and taking
orders from orders on the web.
Q. Can Newbridge survive as a standalone company?
A. Look at it this way. (Swedish auto maker) Volvo is an awful lot smaller than
General Motors. Yet Volvo has carved out a market niche -- Volvo equals safety
-- which is well recognized and is directly appropriate to a market segment that it
dominates. So the issue for Newbridge is to define the market segments it can
dominate -- such as ATM (high-speed switching), LMDS (high-capacity wireless
systems) and IP services (Internet technology). We believe that's possible. And
it's because of this belief that I've stated very, very publicly that we're not trying
to sell the company.
Q. In the past few months, have there been board level talks to discuss a formal
offer for an acquisition by someone like AB Ericsson?
A. I'm actually not sure I can answer that question. I mean, of course I know
the answer because I participate in the board discussions. But I honestly don't
know if I have the latitude to be able to say yes or no to that.
Q. You laid out a number of objectives last year for the firm's three main product
groups. Let's start with the most important -- ATM (asynchronous transfer
mode) switching.
A. We have retained our No. 1 position in ATM; in fact we think we've
strengthened it. If you look at the portfolio and product being offered inside the
switching group, it's dramatically improved. Not only that, we've branched out
into a brand new business area. We think we can take our ATM product line and
attack the circuit-switched world of (New Jersey-based) Lucent Technologies
and (Brampton-based) Nortel Networks.
Q. A year ago, you were talking about creating a $1 billion-a-year "access"
business by fiscal 2002 from products such as broadband wireless (known in the
industry as local multipoint distribution systems, or LMDS) and high-speed
copper technology (asymmetric digital subscriber line, or ADSL). Will you still
hit that target?
A. Yes, we're pretty certain we're going to be able to do that. Broadband access
is a very serious business opportunity for the corporation.
Q. You don't feel you underestimated the $1 billion target?
A. I expect that if we do this interview in 2002, we'll be able to stick the size of
the broadband access business in the 'win' column and give it a green 'check'.
Q. Shortly after you arrived, you had been talking about an Internet strategy that
included four companies affiliated to Newbridge: TimeStep, Telexis, Bridgewater
Systems and Vienna Systems. Since then, you've bought TimeStep and sold
Vienna Systems. Where do Telexis and Bridgewater now fit into things?
A. In the course of the last 12 months, our notion of what to do in the IP
services market has evolved. We're not trying to make bigger, faster routers.
We're not trying to outmuscle somebody else in hardware. We believe the
fundamental issue in the IP space is that the service providers aren't making any
money selling it. We believe there's a way of crafting product offerings for them
that they can sell at a profit. We're more oriented towards the creation of
services and that's where TimeStep and Northchurch come in.
Q. Vienna Systems, which makes voice-over-Internet technology, would seem to
fit this strategy as well.
A. Vienna was a different story. We owned about 30 per cent of the firm but,
after looking at the Vienna management team, we concluded they didn't want to
fight in the marketplace; they really wanted to sell the company. We decided to
let them go ahead and do what they wanted.
Q. Will you look for another voice-over-IP company down the road?
A. Now I'll be very circumspect so that you can't get me to talk about the next
acquisition (laughs). There are lots of places to get voice-over-IP technology
around the world right now. You don't necessarily have to own it.
Q. Is Newbridge contemplating moving into a fourth niche?
A. No, we wouldn't move into a fourth until we consolidated our position in the
two that we've now moved into. ATM is a given. I would really like to achieve a
significant market position in the LMDS and ADSL space. That requires a great
deal of attention. The largest acquisition we've done is (California-based)
Stanford Telecom and that's in that space. And we've got a lot of work to do on
IP. It would not be prudent to move into a fourth space except maybe
professional services to support those other two; that is, consulting to teach
other people to use the other significant networking products.
Q. When can we expect another acquisition?
A. There's a reasonable chance it would be before the end of this calendar year.
Q. Newbridge hasn't done that well historically selling technology to newer
carriers, also known as alternate service providers. Is this changing?
A. The weakness was really a result of lack of focus. The market segment that
we paid attention to happened to be represented by the large carriers such Bell
Canada and the regional Bell operating companies in the U.S. Ascend (a
Newbridge rival recently acquired by Lucent) grew largely by capturing the
alternate carrier space in the U.S. They did it because they had no competition
from Newbridge. We didn't pay any attention to that market. We had no
marketing programs for it. We had no sales people calling on those accounts. So
Ascend grew their business rather dramatically.
Q. So what's been your response?
A. One of the things you do in this marketing warfare game is try to make it
difficult for your competition to do well in a segment. We've reassigned our local
area networking (LAN) sales force to this space, largely in the U.S. but
significantly as well in Europe --and have made some serious progress. When
you take a look at last quarter's results, SBC Communications Inc. (of Texas)
was our largest direct customer. And AT&T (Co. of New York) was our
second-largest customer. AT&T is an alternate carrier that has developed very
nicely for us.
Q. How do you intend to raise Newbridge's profile in the U.S.?
A. We go back to the fundamentals. We have to have people located very close
to the decision power points of your customers. We have to have confidence in
the people leading your organization both technically and culturally. We have to
hire the people with the sense of urgency and aggressiveness that our
competition does. And we have made progress there. I see no fundamental
limitations in our ability to be successful.
Q. Your former colleagues at Nortel have made a lot of noise about the brain
drain from Canada to the U.S. Do you have the same concerns?
A. It's hard for me to answer that question. We brought in a reasonable amount
of management talent from the U.S. and I have found no difficulty in being able
to attract people from U.S. locations to Newbridge and to live and work in
Canada. But if you find somebody you really want, you're just going to have to
belly up to the bar and find a way to make the economics work.
Q. Finally, how will you know if the new regime at Newbridge is working?
A. If we can string together three or four quarters of good financial performance
then I'd be willing to say that we have achieved the transformation and gone to a
new level. |
