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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: gbh who wrote (14250)	11/3/1999 6:25:00 AM
From: Glenn McDougall	Respond to of 18016

Newbridge jolted by earnings shock Lutz quits as president Jill Vardy Financial Post OTTAWA - Newbridge Networks Corp.'s stock value was decimated yesterday as the company fired its number two executive and announced quarterly results even worse than the worst fears of investors and analysts. Newbridge, the Kanata, Ont.-based telecommunications equipment maker, saw its shares plunge 24% in New York on news the company's results for its quarter just ended were less than half what analysts expected and that Alan Lutz, Newbridge's president and chief operating officer, has been replaced. "The second quarter was a disappointment, there's no doubt about it," Terence Matthews, Newbridge's chairman and chief executive, said on a conference call yesterday. "As a result there's been some immediate actions. [On Tuesday] I accepted the resignation of Alan Lutz." At the close of markets yesterday Newbridge shares had hit a 52-week low of $15.75 (US) in New York, down $5 (US). In Toronto, the stock fell $6.80 to $23.10. The company's market capitalization fell by $1.2-billion yesterday alone, to $4.2-billion. Mr. Matthews said Newbridge needed a jolt like this to put the company back in fighting form. "We needed a shock like this to jolt people," he said in an interview after a speech to employees yesterday. He told staff he was disappointed in their performance. "Already I'm seeing a dramatic response from employees. ... This feels like a startup company again. People want to fight." Mr. Matthews, who has seen about $1-billion of his personal fortune in Newbridge wiped out in the past year, cautioned analysts that sales of its asynchronous transfer mode (ATM) equipment, the products on which Newbridge relies for revenue growth, will be slower than anticipated in the third and fourth quarters. "Today is an inflection point for Newbridge. The firm has to step back and make some big, bold drastic and public strategic decisions about its future," said Robert MacLellan, technology analyst at CT Securities. "This is the worst possible scenario that has taken place. We've got sales down with no explanation as to why." Analysts were frustrated by the company's inability to explain why, when orders for Newbridge's products continue to grow by more than 20%, revenues remained virtually flat. "I simply haven't heard an answer as to what went wrong and what's going to be done to correct it," Brian Piccioni of Nesbitt Burns Securities complained. "I'm sorry but I don't have a simple answer for you," Mr. Matthews replied. While the answers may not be simple, the scope of the problems is painfully clear. The company's North American sales fell during the second quarter ended Oct. 31, leaving it with revenue of just $480-million (US) and earnings per share of 8½ to 10½ (US). Analysts expected 19½ (US) earnings per share, although many were worried the company might not meet those expectations. Newbridge has had difficulty shipping enough products to fill orders. And sales of its older lines have been slipping. Development of new products has been delayed. But rarely has Newbridge reported a quarterly drop in ATM sales, as it did yesterday. Pearse Flynn, the company's executive vice-president in charge of European operations, has been named to replace Mr. Lutz. He promised "rapid action." Many of Newbridge's customers appear to be waiting for the company's 50 gigabit switch. Mr. Matthews said clients are lined up to begin lab trials of the new switch at the end of November. Ken Wigglesworth, Newbridge's chief financial officer, said the last time ATM sales dropped sequentially was in the third quarter of 1998, when a new higher-speed version was due to be released. ATM sales jumped by 10% to 15% in each of the next six quarters. Mr. Matthews said customers are also excited about a super-speed 450-gigabit switch, due out early next year. The new high-speed switches are crucial to the company's future.