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

To: jim who wrote (14254)	11/3/1999 6:23:00 AM
From: Glenn McDougall	Respond to of 18016

Newbridge stock plunges on sixth earnings warning President's sudden resignation adds to talk about firm's ability to stay independent SIMON TUCK Technology Reporter; Source: Datastream Wednesday, November 3, 1999 Ottawa -- Newbridge Networks Corp.'s president resigned yesterday, the same day the embattled company again warned that its earnings will fall far short of estimates, sparking a freefall in its stock and fresh speculation about its ability to stay independent. Newbridge said yesterday that its second-quarter profit will be no more than half the expected level of 20 cents (U.S.) a share, largely because of the sagging sales of its flagship communications equipment product in the United States. "It's a disappointment -- there's no doubt about it," said Terence Matthews, founder, chairman and chief executive officer of the Kanata, Ont.-based communications equipment company. "It would be good if I could package a simple answer but I don't have one." Newbridge should now put itself up for sale, said Robert MacLellan, a technology analyst at CT Securities Inc. in Toronto. "This morning's preannouncement was a watershed event where you either continue with the status quo or make the bold, nasty decisions that need to be made," he said, echoing the sentiment of many analysts. Analysts said the company's revenue and profit warning, its sixth in the past 10 quarters, was a particularly tough pill to swallow because it came with little in the way of explanation or remedy. But, as The Globe and Mail reported last week, there was widespread speculation of another earnings shortfall. Mr. Matthews also said the company might continue to languish until the end of the next quarter, when its new high-powered switch is expected to begin making a dent in its market. Investors seemed to agree. Newbridge shares tumbled $6.80 (Canadian) or 23 per cent to $23.10 on the Toronto Stock Exchange yesterday to set a 52-week low. The stock, which reached its all-time high of $95 two years ago, peaked at more than $57.50 less than seven months ago but has since been falling. "For Newbridge investors, this has been a bad dream that has turned into a nightmare," said David Powers, a technology analyst at investment dealer Edward Jones in St. Louis. Newbridge said it expects to earn between 8 and 10 cents (U.S.) a share during the quarter on revenue of about $480-million (Canadian), compared with analysts' expectations of a profit of about 19 cents (U.S.) a share on revenue of about $530-million (Canadian). The earnings figures do not include one-time charges. The announcement also included the departure of president and chief operating officer Alan Lutz, a seasoned operations specialist hired in May, 1998, from Compaq Computer Corp. to make Newbridge more reliable and efficient. Mr. Lutz was replaced by Pearse Flynn, the company's executive vice-president and general manager for Europe, the Middle East and Africa. Analysts said this latest shortfall was worse than previous indiscretions because it came with the company's first major lapse in its flagship switching products -- based on asynchronous transfer mode [ATM] technology -- and with sour sales in the United States, its most important market. "It's pretty ugly," CT's Mr. MacLellan said. "It's by far the worst because it was ATM-related." Newbridge said sales from North and South American markets fell slightly -- to 49 per cent of revenue from 51 per cent -- while there was no change in Asia-Pacific. The company said sales in the key U.S market had fallen, but did not supply separate figures. In Europe, sales increased almost 40 per cent from the same period a year earlier, which represented a rare bright spot in the quarterly figures. "Clearly, something isn't working at Newbridge," said Michael Urlocker, an analyst at Scotia Capital Markets in Toronto. The industry has been consolidating in recent years as the voice and data telecommunications industries converge. But analysts question whether Mr. Matthews would sell. Mr. Matthews, who owns more than 20 per cent of Newbridge shares, has often said he wouldn't refuse a good offer for the company but yesterday didn't answer an analyst's question about that possibility. Mr. Matthews said he's assembled a committee to look into the company's problems. More details will be provided when the company reports final results for the second quarter on Nov. 18.