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

To: MikeM54321 who wrote (14313)	11/4/1999 7:04:00 AM
From: Glenn McDougall	Respond to of 18016

Jittery investors pummel Newbridge again Stock drops more than 8% on concerns about company's future; at least four analysts downgrade ratings TYLER HAMILTON Technology Reporter Thursday, November 4, 1999 Newbridge Networks Corp.'s stock fell more than 8 per cent yesterday as uncertainty over the network equipment maker's future prospects continued to fuel investor jitters. The Kanata, Ont.-based company's stock closed down $1.95 yesterday to $21.15 on the Toronto Stock Exchange, a day after the company said its second-quarter share earnings will be no more than half the expected level of 20 cents (U.S.). Newbridge -- in its sixth profit warning in the past 10 quarters -- blamed the latest shortfall on sluggish U.S. sales. At least four analysts yesterday downgraded the company's stock, which has plunged nearly 50 per cent in the past two months. George Hunt, an analyst at Wachovia Securities, downgraded Newbridge to "neutral" from "long-term buy," ABN Amro analyst Kenneth Leon downgraded the stock to "outperform" from "buy," and Benn Mikula of RBC Dominion Securities changed his rating to "underperform" from "under review." Mr. Mikula also reduced his 12-month stock price target to $23 (Canadian) from $49.50. Dave Powers, an analyst with Edward Jones in St. Louis, has had a "hold" on Newbridge's stock for a while, and advises those who don't own the stock to invest their money in better places. "The problem with the stock right now is nobody wants to catch a falling sword," he said. "We think new money should be put to work elsewhere, until Newbridge can demonstrate an ability to post consistent revenue and earnings growth." He said there are certain aspects to Newbridge that make it a valuable proposition: it has a large cash balance, a solid and respectable customer base, a talented pool of engineers and good technology. One of the problems, he added, is that Newbridge -- while a leader in ATM, or asynchronous transfer mode technology -- needs to broaden its technology offerings to meet demand for optical networking products, an area competitors such as Nortel Networks Corp. and Lucent Technologies Inc. are dominating. "Right now the optical segment of communications is on fire," he said. "Nortel's optical business is smoking." Another problem is that Newbridge's management has traditionally had a difficult time executing on promises, and has too often had to made excuses to justify its fumbles, analysts said. Mr. Powers said quarterly excuses range from slower-than-expected sales in a product line to acquisition blunders to supply-management problems. The latest excuse was a poor performance from its U.S. sales force. Duncan Stewart, a portfolio manager at Tera Capital Corp. in Toronto, said one of Newbridge's biggest problems may be the management style of its founder, chairman and chief executive officer Terence Matthews. "Terry Matthews is a very relentless, optimistic guy," Mr. Stewart said. "That's great for building a team. The only problem is, that kind of top-down optimism can lead to disappointments when those goals are not met." He said Mr. Matthews doesn't appear to take disagreement well, which could create an environment where conflicting views won't surface. "That can lead to a problem within the organization, because people won't tell him what he needs to hear," Mr. Stewart said. He said investors may see the bargain-bin price of Newbridge's stock as an opportunity, but warned that stocks are cheap for a reason. Still, he added that there's a good chance the stock will rebound at some point, driven largely by speculation of a takeover. "That's probably 90 per cent of the reason I own the stock." That's the line of reasoning put forth by Mr. Powers, who questions Newbridge's ability to exist as a stand-alone company. "If you already own it, hold onto it, because [Newbridge] does have a number of assets and there's the potential that they could eventually be acquired by a large competitor." Past speculation has pegged Siemens AG of Germany as the most obvious potential acquirer of Newbridge, because the two companies already have a close marketing relationship. Analysts say now may be the best time ever to take a run at Newbridge. In the past three weeks, its stock has dropped more than 35 per cent, knocking more than $2.4-billion off Newbridge's market value.