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

To: Samuel Wayne Turner who wrote (14741)	11/19/1999 6:20:00 AM
From: Glenn McDougall	Read Replies (1) \| Respond to of 18016

Terry Matthews names Cisco Systems, Nortel, Alcatel and Ericsson as likely suitors; Kanata operations to cut 500 jobs James Bagnall The Ottawa Citizen For the first time in its 13-year history, Newbridge Networks Corp. has formally opened the door to being taken over. This dramatic development emerged yesterday at the Corel Centre during a closed session involving most of Newbridge's Kanata workforce. Company founder and chairman Terence Matthews told his employees in response to a question that no merger or acquisition negotiations are taking place, but he wouldn't guarantee that Newbridge would not be taken over some time down the road. Surprisingly, Mr. Matthews named four possible acquirers: Cisco Systems Inc. of San Jose, California; Nortel Networks Corp. of Brampton, Ont.; Alcatel SA of France; and LM Ericsson, the Sweden-based wireless communications giant. Newbridge president Pearse Flynn, who shared the stage with Mr. Matthews, said later during an interview with the Citizen that these companies were listed "by way of illustration." Mr. Flynn stressed that "we have not engaged anyone to sell the company," but added that Newbridge had hired a top-tier investment bank from New York to canvass this and other options. This unprecedented move was prompted by weaker-than-expected sales in the company's second fiscal quarter, ended Oct. 31. Newbridge also revealed yesterday that it will trim about 750 employees worldwide -- representing about 11 per cent of the workforce. Two-thirds of the reduction will affect Kanata employees, who are expected to find out next Wednesday who will be laid off. At the same time, Newbridge is considering putting its manufacturing operation on the auction block -- though any new buyer would likely retain most of these employees. "We're making the tough decisions so we can create the right cost structure for our revenues," said Mr. Pearse. "We clearly haven't demonstrated stellar performance for a good number of quarters." The sale of the company -- worth $4.3 billion U.S. at the close of trading yesterday -- would be a watershed event for this region's high-tech sector. Not only is Newbridge its third-largest employer (after Nortel and JDS Uniphase Corp.), it has been instrumental in launching more than a dozen regionally headquartered firms, such as Kanata-based Tundra Semiconductor Corp. and CrossKeys Systems Corp. Any new owner would be much less likely to pursue Newbridge's strategy of providing seed capital to startups. On the other hand, fresh ownership may be just what is required to transform Newbridge's core technologies into consistent revenue producers, a point acknowledged yesterday by Mr. Pearse. Although Newbridge generates more than $2 billion annually by selling high-speed switches and wireless networks to telecommunications services firms, it is a relative midget in its industry. Giants like SBC Communications Inc. of San Antonio, Texas, are preparing to spend billions on upgrading their networks to handle much greater quantities of digital traffic. These next-generation networks are generally built using three main technologies -- fibre-optics, Internet Protocol gear and asynchronous transfer mode (ATM) switches. Newbridge is really a power only in ATM -- and even here it is beginning to lose ground to Ascend Communications Inc., a U.S.-based firm acquired early this year by Lucent Technologies Inc. of Murray Hill, New Jersey. "We were late to exploit the sweet spot in the U.S. market and we let Ascend come in," said Mr. Pearse. "But if somebody big bought us, we'd murder Ascend with our technology." This raises the interesting question of who would benefit Newbridge most. The two European suitors named by Mr. Matthews could use Newbridge's ATM technology but they have a relatively weak presence in the U.S. This is the sales region that led to the revenue shortfall in the firm's second fiscal quarter. On the other hand, Nortel and Cisco each already have units that sell ATM gear but offer the considerable advantage of having strong U.S.-based sales forces. There's also a strategic consideration. Both Nortel and Cisco are getting beat by Lucent in the ATM market globally -- so adding Newbridge's product lines to their own would create a much closer fight in this niche. There are also some nice potential ironies here. Newbridge's former head of R&D, Scott Marshall, is now a senior executive at Cisco. Mr. Marshall was fired last year when Alan Lutz became Newbridge's president. Mr. Lutz resigned earlier this month. Now Mr. Marshall now appears to be in position to exercise considerable influence should Cisco decide it would like to acquire Newbridge. A Nortel purchase of Newbridge raises interesting questions of concentration in the Ottawa area. Nortel already employs more than 15,000 workers locally and Newbridge, even after the latest round of job cuts, would add another 3,000 or so.