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

To: pat mudge who wrote (7650)	11/24/1998 6:11:00 AM
From: Glenn McDougall	Read Replies (3) \| Respond to of 18016

Newbridge back on recovery track ottawacitizen.com Kanata high-tech firm expected to unveil third straight earnings gain James Bagnall The Ottawa Citizen / Financial Post Newbridge Networks Corp. has been investors' ultimate roller-coaster. Those with the fortitude, foresight or luck to invest in this mercurial data communications specialist in the early 1990s could have easily seen the value of their shares jump fifty-fold. But investors who bought the Newbridge story late in the summer of 1997 probably saw the value of their stake plummet by more than 50 per cent. The culprit was the January 1997 acquisition of UB Networks, a California-based computer networking company that never stopped losing market share. It provided no end of grief and distraction for Newbridge management. In six quarters ended Aug. 2, Newbridge has taken $286.6 million worth of extraordinary charges, most of them related to UB Networks writedowns and severance costs. During this stretch, Newbridge's investor relations executives damaged their own credibility by surprising analysts at least three times with early, downward revisions of company results. Now, finally, the impact of UB Networks has just about worked its way through the cycle and Newbridge is starting to show signs of a solid turnaround. The Kanata firm is expected today to deliver its third straight quarter of improved earnings. The consensus estimate of 19 analysts surveyed by IBES Inc. is for Newbridge to post a net profit of 18 cents U.S. per share for its second fiscal quarter ended Oct. 31. That's down from 23 cents U.S. per share during the same period a year ago but up from 14 cents U.S. per share in the first fiscal quarter. Even better, starting with the third quarter (ending next Jan. 31), Newbridge's earnings will start to look great in comparison with a depressed fiscal 1998. Analyst George Hunt of U.S.-based securities firm Interstate/Johnson Lane, predicts Newbridge's earnings will jump 23 per cent to $210 million Cdn. in fiscal 1999 or 82 cents U.S. a share. He also expects sales to jump nearly 30 per cent to $1.88 billion Cdn. This growth comes in the face of a huge collapse in UB Networks-derived revenue, from $127 million Cdn. in fiscal 1998 to an estimated $4 million Cdn. in fiscal 1999, Mr. Hunt said. The fuel behind Newbridge's rise is its multimedia switching unit, which sells a variety of devices, such as asynchronous transfer mode (ATM) or frame relay switches, to phone companies and Internet service providers. The unit has been growing year-over-year at 40 per cent plus. Last year, sales of these products accounted for nearly half of Newbridge's total sales and could make up nearly 60 per cent in fiscal 1999. Global One, a joint venture involving Deutsche Telekom, France Telecom and Sprint, is, according to BT Alex Brown analyst Michael Gordon, near a decision on placing a major ATM order for its own network. The value of such a deal is by no means clear. The figure $750 million U.S. has been bandied about, but this appears to be an estimate of what what all four organizations intend to spend on their networks. Mr. Gordon said Newbridge has already sold dozens of ATM switches to Deutsche Telekom. However, France Telecom is the lead customer for ATM and other technologies developed by Newbridge's archrival, Northern Telecom Ltd. Even so, it seems clear Newbridge is scoring in the ATM market. Vertical Systems Group released a study yesterday predicting Newbridge will emerge from 1998 with a leading, 22.3-per-cent share of the global market for ATM switches used by telephone carriers and ISPs. It also predicted the ATM equipment market for carriers will grow at 37 per cent per year for the next three years. All of this helped to drive up Newbridge's share price to $39.30 on Friday on the Toronto Stock Exchange -- up 16 per cent from the week before. Given all the activity surrounding Newbridge, that's not a huge jump. "Newbridge has taken a number of good, initial steps, including the appointment of (new chief operating officer) Alan Lutz,'' said Todd Coupland, an analyst with CIBC Wood Gundy, "but it's still in the process of rebuilding investor confidence." He points out that Newbridge's share price continues to trade at a substantial discount compared with top competitors, Ascend Communications Inc. and Cisco Systems Inc., both of California. Ascend and Newbridge over the past 12 months have generated roughly the same amount of revenues and are now expected to report similar earnings growth over the next two years. Yet Ascend's current market value -- about $12 billion U.S. -- is more than double that of Newbridge. That's just one sign of how much credibility Newbridge has lost. Today, the company should take another step toward winning some of that back.