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

To: HPC who wrote (3181)	2/10/1998 1:06:00 AM
From: JBTFD	Read Replies (1) \| Respond to of 18016

From the Ascend thread: Newbridge Networks ú Problems with Newbridge's UB unit should soon be over as the final steps in the restructuring process are completed. Already, the company has laid off 200 employees (primarily sales staff) from the unit. We anticipate that the UB announcement (expected by Feb. 1) will be multi-faceted in the following way: 1. "Transfer" of the firms' older layer 2 UB products/assets to 3COM 2. Gradual migration of the more advanced layer 3 UB/Newbridge LAN products to 3Com over time - to preserve continuity for the Newbridge LAN installed base customers 3. A range of co-marketing agreements between 3Com and Newbridge regarding the firm's VIVID and 36170 ATM switching products. ú The resulting one-time event related to UB and the firm's willingness to "fall on the sword" and cut their losses should generate some substantial goodwill on the Street in 1998. ú Although TDM sales continues to be flattish, we believe that growth in ATM product sales will offset this move as TDM enters its mature market stage. TDM currently represents approximately 45% of Newbridge's total revenue and carries 70- 75% gross margins. While a cash cow, TDM has been staying relatively flat for the last two quarters as WAN packet sales continue to show double digit sequential growth. ú The company recently announced that its co-marketing agreement with MCI (MCIC/NASD/$42.69/NR) has been extended for another two years. The agreement has been in existence for about four years and had previously included onlyNewbridge's TDM equipment. Now, MCI has expanded the agreement to include WAN packet products as well. Last year, MCI contributed roughly 2% of total revenue, all in TDM sales. Sales of WAN packet gear could help exceed last year's contribution. ú Industry sources indicate that Newbridge and 3COM will shortly announce more details regarding their alliance (see earlier point re: UB). We think that this announcement will describe a formalized co-marketing agreement between the three companies (Newbridge/Siemens/3COM). Revenue gained through this alliance would be incremental to current sales projections. Although we do not believe that significant contributions will be made this year, we think that the revenue potential going into next year will be very high. The ability for Newbridge, Siemens and 3Com to take on larger and/or more specialized players such as Cisco should not be underestimated. ú Our current F1999 earnings estimate for Newbridge is $1.63. We predict that the company will grow at a sustainable rate of 40%. Using a 1 times growth rate valuation method based on our F1999 EPS estimate of $1.63, we predict that a US$60-65 price target will be achievable within the next 12 months. ú We are expecting the firm to announce a number of domestic and large offshore ATM telco contracts for ATM-centric networks in F1999 - further evidence of the firm's continuing momentum and leadership in the broadband switching arena. Entire post: Message 3377378