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

To: Ian@SI who wrote (11647)	6/1/1999 7:09:00 AM
From: Glenn McDougall	Respond to of 18016

Newbridge's information gap How Alan Lutz misread his own firm -- and what he intends to do about it James Bagnall The Ottawa Citizen There are few things more embarrassing for a company president than to reveal publicly that he doesn't know what's going on inside his own firm. This is the situation that faced Newbridge Networks Corp. president Alan Lutz on May 4, when he was forced to acknowledge that his company's fourth-quarter sales and earnings would fall well short of analysts' estimates. Only five days earlier, Mr. Lutz had told a Kanata audience that Newbridge's top product line would break all sales records for the fourth-quarter ended May 2. Mr. Lutz has scheduled a late afternoon telephone conference today in which he will try to explain how his numbers could have been so divorced from what was happening elsewhere in the company. At least part of the answer, Newbridge insiders now acknowledge, has to do with how information is gathered and delivered within the firm. Like many other high-tech firms, Newbridge uses separate software programs for doing sales forecasts, production schedules and parts purchases. Ordinarily, the information from these databases would be merged at some point, allowing some intelligent predictions about whether Newbridge's manufacturing unit, for example, could handle a surge of last-minute business. However, Mr. Lutz appears to have been caught relying on just one of these streams of information -- the one generated by the sales forecasting model. If true, it's still not clear why this happened. Newbridge a couple of years ago awarded a contract to Think Systems, a New Jersey-based supply- chain management specialist to put into place a system for planning production schedules in line with revised sales forecasts. Think Systems is a unit of Texas-based i2 Technologies Inc., considered the globe's top developer of planning and scheduling software. Newbridge has also assigned more than 60 employees full-time to the job of installing an even more comprehensive electronic information system designed by SAP AG of Germany. The SAP system, scheduled to be completed by November, also includes personnel, accounting and other types of corporate data. Still, no matter how automated the forecasting and production process, there's always room for interpretation of the numbers coming in. And this might be where the disconnect occurred at Newbridge. Mr. Lutz recently told SG Cowen analyst James Kedersha that Newbridge's manufacturing unit has been operating with its own set of assumptions about how many customer orders are real and how many reflect the wishes of sales people. Bruce Rodgers, the executive in charge of manufacturing operations for most of the 1990s, is a key player here and analysts are watching closely to see whether Mr. Lutz will keep him. Mr. Rodgers figures very large because Newbridge decided very early on that it would do most of its manufacturing in-house, in sharp contrast with California-based archrival Cisco Systems Inc., which contracts out manufacture of most of its products to specialists. During the mid-1990s, Newbridge and Mr. Rodgers did a creditable job keeping up with the enormous demands of a rapidly expanding firm. But too often, the system demanded frenetic, round-the-clock production at quarter's end to meet the numbers. It's a phenomenon Mr. Lutz calls "the diving catch" quarter. However, the routine caught up with Mr. Rodgers only recently, when sales of ATM networks suddenly started going through the roof. After more than a dozen quarters of averaging 10- to 12-per-cent sequential growth, Newbridge's ATM revenues soared 35 per cent in the third quarter ended Jan. 31 from the previous quarter, and orders jumped 45 per cent. In the fourth, they were up an even more astonishing 50 per cent. At this pace, Newbridge's home-grown manufacturing systems couldn't cope. This evening, Mr. Lutz is expected to unveil plans to correct this. On one front, he'll outline incentives to encourage sales people to finalize orders well before the end of the quarter, in theory taking pressure off the end-of-quarter rush. Newbridge's designers have already begun designing new products that will take into account manufacturing constraints. One example: there will be fewer devices that require testing on the assembly lines themselves. Mr. Lutz is also keen to reduce the number of options available on each of his firm's major products, something that would simplify the job of ordering parts and planning production. As well, Newbridge is likely to outsource more of its production to such niche players as Montreal-based Primetech Electronics Inc., which already builds many of its simpler devices. Not least, Mr. Lutz wants to be sure that every one of his firm's databases feed properly into the new SAP system, giving him instant access to Newbridge's latest internal projections. If he then opts to share these with a public audience, that will at least substantially reduce the odds he'll have to eat crow again.