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

To: Mark Kubisz who wrote (5817)	7/30/1998 8:24:00 PM
From: pat mudge	Read Replies (1) \| Respond to of 18016

From Dow Jones: <<< Dow Jones Newswires -- July 30, 1998 CrossKeys' Stk Down On Selling By Large Investors By SCOTT ADAMS Dow Jones Newswires TORONTO -- Thursday in Toronto, CrossKeys Systems Corp.'s (CKEYF) shares have recovered somewhat, to 9.85, after having hit 7.00 on Tuesday. The stock was trading at 11.50 about a week ago. So far, the best explanation offered about the drop is that some large investors appeared to want out of the stock at any cost. The drop doesn't reflect a decline in the company's fundamentals, observers said. "(The stock) has a very tiny float so if one big holder wants to get out, which I suspect (was) the case, they really take it down a lot because it's not that easy to find a buyer," said Stephen Koffler, an analyst with Donaldson Lufkin & Jenrette Securities Corp. CrossKeys' chief financial officer, Steve Spooner, concurs. Typically, company insiders and employees in Canada aren't allowed to sell their stock until 12 months after an initial public offering. Underwriters of the issue also ask insiders and employees to sign a contract agreeing not sell the stock until six months after the IPO, Spooner said. That six months is up and Spooner understands that some former employees have been selling through Nasdaq. "We also believe there are some institutions getting out of the stock," Spooner said. "We've had some indications that there are institutions who come in and want to make a quick profit. They hold for a number of months and if the shares haven't appreciated, they take their money elsewhere." CrossKeys, a Newbridge Networks Corp. (NN) affiliate, went public last December at C$14.95 a share. The shares traded as high as C$22.50 in January. As for why the sellers are cleaning house now, Koffler said he doesn't know, and he still believes CrossKeys can still meet its financial targets. CIBC Wood Gundy Securities Inc. analyst Todd Coupland is sticking with his forecast that the company will earn 10 Canadian cents a diluted share in the first quarter, and 45 Canadian cents a share in fiscal 1999. His price target on the stock is C$21. In fiscal 1998, which ended April 30, CrossKeys earned 28 Canadian cents a diluted share on revenue of C$38.7 million. While Spooner won't discuss the company's first-quarter results, to be reported Sept. 2, he pointed out that CrossKeys met expecations in its first two quarters as a public company. But even if CrossKeys Systems Corp. (CKEYF) has met quarterly expectations since its initial public offering, it hasn't exactly won rave reviews on the street. For many, CrossKeys' growth is still far too tied to that of Newbridge Networks Corp. (NN) and Newbridge's tight alliance with Siemens AG (G.SIE). CrossKeys sells its software and service to telecommunications companies through three sales channels, Newbridge, Siemens and Digital Equipment, which was recently taken over by Compaq Computer Corp. (CPQ). Newbridge and Siemens each account for about 40% of revenues, with Digital accounting for about 10% to 20%, CrossKeys chief financial officer Steve Spooner said. Newbridge has had its share of troubles this year, as it tries to compete with much larger companies such as Cisco Systems Inc. (CSCO). Newbridge's stock is trading at 31.65 in Toronto, far off its 52-week high of 95.00. And in the Digital sales channel, Spooner admits that some telecommunications companies have taken a "wait-and-see" stance before committing to a deal, until they are sure that Compaq is interested in staying in the business of providing systems to telecommunications firms. "While the (Digital) channel in the past quarter or two has not been as strong for us as it has been in previous quarters, we're still very bullish," Spooner said. "We've had very positive signals out of Compaq that they are committed to the telco space." Some of the business with Digital has also been in Asia in the past and is slower now because of the economic crisis, he noted. In any case, Spooner said CrossKeys is working hard on landing some new major sales partnerships. "Hopefully, we"ll be able to come to the street within the next six months or so and announce additional partners," he said. If it's taking longer than expected to land a new sales partner, Spooner points out that these potential agreements are with large corporations, and CrossKeys is small. "It takes time," he said. Investors may also be losing patience with CrossKeys because it hasn't made an acquisition since its IPO. As of the end of the fourth quarter, the company was sitting on C$54.6 million in cash. Spooner said the company is always looking at acquisitions. He wouldn't indicate if the company is close to one, but he did say a new sales partner is "probably" a higher priority than making an acquisition at this point. -By Scott Adams; 416-943-7800>>>>