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

To: Maple Leaf who wrote (9836)	2/25/1999 7:11:00 AM
From: Glenn McDougall	Read Replies (1) \| Respond to of 18016

Newbridge boss sees earnings up 50% next year Analysts skeptical: Firm already filling Global One contract, Alan Lutz says Jill Vardy Financial Post Newbridge Networks Corp. is already shipping equipment under contract to the Global One consortium of telephone companies, its president confirmed yesterday. Alan Lutz said concern about the fate of the Global One supply contract, which Newbridge was widely expected to receive late last year, can be laid to rest. "I can tell you for sure we have shipped into that contract already," Mr. Lutz said in an interview yesterday, a day after he laid out the company's third-quarter results and future plans on a conference call with financial analysts. He was optimistic on the call, despite the fact that Newbridge's net income in the quarter ended Jan. 31 was $46-million (17¢ US a share, excluding extraordinary items) on revenue of $451-million. That was about 5¢-a-share lower than analysts had expected. Newbridge has warned of the earning shortfall on Feb. 4, so it came as no surprise to analysts. In fact, Newbridge's stock was up 70¢ to $41.15 yesterday, largely on Mr. Lutz's predictions that it will post 50% earnings growth next year. That should be possible, given the weak year that 1998-99 has been. But that rate of growth requires more business than Newbridge officially says it has, analysts say. "I suggest to you demand for the ATM (asynchronous transfer mode) products remain strong, but they need some unannounced contracts to generate the kinds of revenue and order intake people expect," said Cheryl Nesbitt, technology analyst at Scotia Capital Ltd. "We believe there are shipments taking place on contracts that have not been announced." Mr. Lutz also told analysts the company will soon unveil several products, including one that will allow telephone companies to offer full voice services on data networks, using Newbridge's high-speed ATM switches. He said Newbridge will also concentrate more intensely on Internet Protocol (IP) services, building an IP division out of its Boston-area affiliate companies. He said he has received permission from Newbridge's board of directors to ratchet up the company's work on wireless networking, despite losing a key wireless contract to Cisco Systems Inc. this month. Newbridge is suing its former customer, WIC Connexus, for breach of contract over losing the deal. The loss of that deal, the missed quarter, and the ensuing plummet in Newbridge's stock price has apparently not dampened the enthusiasm of the Newbridge president and chief operating officer. "People asked me last night, 'Why is your attitude so upbeat?' Frankly, it's upbeat because we have made a tremendous number of fundamental changes in this organization which are beginning to bear fruit," Mr. Lutz said. Still, analysts say there's a lot of work to do to restore the credibility of Newbridge, hammered last year by missed quarterly results and the disastrous attempts to break into the local area network market by acquiring UB Networks of California. The restoration project has involved a restructuring of Newbridge's R&D units, the firing of several senior managers and the hiring of six new ones, improved communications and sales teams, and road shows to convince analysts Newbridge can remain a top player in a crowded market. Mr. Lutz acknowledged it's going to be very hard to meet or beat forecasts for the company in the year ahead, especially since Newbridge's old cash cow -- its older lines of networking equipment -- will show no growth in revenue next year. Meeting the predictions of 50% earnings growth depends on continuing very strong sales of Newbridge's ATM equipment, which showed 35% growth in the third quarter over the previous three months. Analysts remain skeptical. "The street started out this year predicting earnings a share of $1.20. Now, it's down to just over $1," said one analyst, speaking on condition of anonymity. "In a turnaround year you can slip a little, and say you had difficulty meeting demand, and you'll be forgiven. But you'd better be ready for it next year." One thing that won't happen this quarter, or next, is the situation that faced Newbridge's ATM division in the third quarter -- so many orders for ATM switches came in late in the quarter that Newbridge simply didn't have the product to fill them. "We're anticipating a good quarter and we're buying the parts and building the equipment right now," Mr. Lutz said. "I don't think there will be any supply constraints in the fourth quarter. If there are, there will be some big bootprints on some posteriors around here."