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Technology Stocks : CrossKeys Systems Corp [CKEY and CKY/TSE] -- Ignore unavailable to you. Want to Upgrade?

To: Tapcon who wrote (408)	2/26/1999 6:33:00 AM
From: Glenn McDougall	Read Replies (1) \| Respond to of 792

CrossKeys warns results will be weak Newbridge affiliate hits first major bump since going public James Bagnall The Ottawa Citizen Kanata-based CrossKeys Systems Corp. got hit from nearly all sides in its most recent quarter, producing a sharp slowdown in sales and earnings growth. More worrisome for investors is that the network management software company issued a blunt warning yesterday that results would weaken considerably over the next half year, before recovering. "We do see a short-term challenge," chief financial officer Steve Spooner said in a conference call with analysts and the media. CrossKeys reported a 9.6-per-cent year-over-year jump in net earnings to $1.4 million, or seven cents a share, for its third fiscal quarter ended Jan. 31. Excluding one-time hits related to the bankruptcy of Arnprior-based West End Systems Corp., earnings were up a more robust 64 per cent to $2.1 million, or 11 cents a share. However, prior to this quarter, CrossKeys profits had been at least doubling year-over-year. Third quarter sales rose 37.1 per cent to $13.5 million, a record. But, said Mr. Spooner, "We don't see the ability to sustain that level of revenue for the next two quarters." Two main difficulties are plaguing CrossKeys. For one, the company is finding it more difficult to close contracts in the Pacific Rim and Latin America, where economies have softened. The second problem is specific to CrossKeys. Siemens AG, a major contributor of revenues, is winding down a key project,Êa high-speed data switch known internally as the 36190. Crosskeys is doing a lot of development work on this device, at times generating quarterly revenues as high as $4 million. Mr. Spooner said this would likely fall to only $1 million to $2 million a quarter over the next six months. Quarterly sales will not likely tumble significantly below $13.5 million. But, since the company is not moving to cut costs dramatically, any sales shortfall will have a disproportionate impact on earnings. Company management seems prepared to tough it out, with it's eye on a bigger opportunity. "We will be the dominant supplier of performance management software," said chief executive John Selwyn, who pointed out that CrossKeys's market niche is expected to more than double to $1.2 billion U.S. annually by 2002. CrossKeys, which employs 326 workers, mainly in the Ottawa region, expects the introduction of new products will refuel sales in the second quarter of fiscal 2000. The company also hopes to have new channel partners in place. It signed a deal recently with Ascend Communications Inc. and is negotiating with several other major equipment makers. Even so, as the company's experience with Compaq Computer Corp. illustrates, extra channel partners on their own won't push up sales. Compaq and CrossKeys jointly bid on two significant deals which were both lost to competitors during the quarter. A third Compaq-CrossKeys proposal was rejected when the potential customer decided to do the work in-house instead. During the third quarter, the Compaq channel accounted for only 12 per cent of CrossKeys's total sales, compared to 52 per cent for Newbridge and 27 per cent for Siemens. CrossKeys shares closed at $8.95 on the Toronto Stock Exchange, up 15 cents. Results were published after trading ended.