Newbridge's agent of change
James Bagnall
The Ottawa Citizen
September 23, 1998
Things are changing at the Kanata networking company, and Alan Lutz is
behind the remaking of the region's high-tech giant. James Bagnall reports.
As Newbridge Networks Corp. prepares to greet shareholders today at its
annual general meeting, it's clear this is a much different company than it was
just a year ago.
In September 1997, Newbridge appeared unstoppable. It was riding a wave
of major contracts, including from the likes of BT of Britain and MCI
Communications Corp. of Washington, to a market capitalization topping $15
billion. California-based UB Networks, acquired early in 1997 for $147
million, was yet to begin its collapse. And plans for a major expansion at
Newbridge's Kanata headquarters were well under way.
Today, Newbridge is no longer the dominant manufacturer of high-speed data
switches. Aggressive challengers -- including Cisco Systems Inc. and Ascend
Communications Inc., both based in California -- are narrowing Newbridge's
lead in its chosen markets.
There is talk, unthinkable a year ago, that Newbridge's days as a stand-alone
firm could be nearing an end. New hiring has slowed to a walk; so has the
pace of its physical expansion.
Yet it would be a mistake to conclude this is a broken company. Newbridge
might have lost a key contract two weeks ago to Ascend involving the
construction of Philadelphia-based Bell Atlantic Corp.'s next generation data
network, but it won a bigger deal earlier this summer at SBC Communications
Inc. of Houston. Newbridge revealed yesterday it will supply the lion's share
of a $160 million data network being installed by Telkom South Africa over
two years.
Newbridge paid dearly for its UB Networks debacle, with the result that its
debt load is much higher than a year ago. But it has more than $500 million in
cash and has returned to a pattern of quarterly profits.
Equally important, Newbridge is beginning to address its weaknesses. One of
the most vivid symbols of this is the construction of a 300,000-square-foot
facility near its U.S. headquarters in Herndon, Virginia.
While much of this is to consolidate more than 500 existing employees in one
location, the office block is being designed to expand quickly to 600,000
square feet.
"The notion that it's prepared for a major expansion gives you a strong idea of
what our future thinking is," said Alan Lutz, the company's new president and
chief operating officer, in reference to plans to attack the U.S. market.
The presence of Mr. Lutz, installed as president in early June, is the strongest
signal of the extent of the transformation under way at this region's largest
home-grown technology firm.
Newbridge founder and chairman Terence Matthews spent seven months
trying to entice Mr. Lutz away from a senior position at Compaq Computer
Corp. of Houston, Texas.
Mr. Lutz came on board only when it was clear Mr. Matthews and
Newbridge's board of directors were serious about fundamental change to the
company.
"All sorts of financial analysts asked me in the beginning, 'Are you just Terry's
kid? Are you just going to do what Terry tell you'," Mr. Lutz said in an
interview this week. "The answer is, 'Absolutely not.' I am unencumbered
above me for getting things done."
He has hit the ground running. A series of luncheons with small groups of
employees convinced him he would have plenty of support if he moved
quickly.
Mr. Lutz has already re-organized the firm around three new product groups
-- switching, access devices and Internet technologies -- and appointed
managers who will be accountable for results.
The access products unit got off to a flying start last month by landing as much
as $550 million worth of contracts for high-capacity wireless systems.
One of these is being built by Ottawa-based MaxLink Communications Inc.,
which yesterday unveiled its wireless network plans.
Mr. Lutz has also established a revenue target of $5 billion by fiscal 2002.
That's up from $1.6 billion in fiscal 1998, ended April 30, and implies average
annual growth of more than 30 per cent.
To get there, he said, means addressing serious weaknesses in Newbridge's
general marketing effort and the U.S. market in particular.
"I think most of the difficulty right now in penetrating the U.S. is attitudinal,"
said Mr. Lutz.
"We're trying to increase the level of aggressiveness."
A key element of this strategy was to have been the quick appointment of a
U.S.-based marketing czar. Here, Mr. Lutz has been frustrated. Two weeks
ago, he thought he had landed a top recruit, but the deal fell apart at the last
minute when the would-be executive got a rich counter-offer from his current
employer.
Still, marketing remains a top priority for Mr. Lutz, who plans to substantially
increase Newbridge's physical presence in major markets outside Canada.
On the question of ownership, Mr. Lutz made it clear the goal is to create a
strong, stand-alone company. Should a takeover attempt arise, it would have
to be friendly to be successful, he said, because Mr. Matthews would never
sell his 21-per-cent stake to a hostile acquirer.
There are three "friendly" firms worth watching.
One is Siemens AG of Munich, which formed a marketing and engineering
alliance with Newbridge two years ago. Mr. Lutz hinted there might be
changes in store.
"I don't think that alliances exist forever. It's natural for an alliance to move
and change with the times."
The other two companies of note are Swedish-based telecommunications
giant LM Ericsson and New Jersey-based Lucent Technologies Inc., the
former equipment arm of AT&T Co. of New York.
Mr. Matthews has been effusive about working with Ericsson and Mr. Lutz
added this week that Newbridge had "working relationships" with Lucent.
He declined to elaborate, but this might simply have been a reference to joint
activity on technical standards committees and Lucent's role as a reseller of
some of Newbridge's products.
Mr. Lutz stressed he does not see his role as one of dressing up Newbridge
to prepare it for a sale. His plan is to build a series of working relationships
with these giants to help Newbridge generate new sales. Either way,
Newbridge wins because, if the networking industry demands further
consolidation, Newbridge would have the luxury of several suitors.
|
