Newbridge Networks' future in question

In the aftermath of the telecommunications equipment maker's latest earnings warning, the future viability of the firm is now in serious doubt, analysts say.

3 min read
In the aftermath of Newbridge Networks' latest earnings warning, the future viability of the firm is now in serious doubt, analysts say.

The telecommunications equipment maker yesterday said it expects a second-quarter profit of 8 to 10 cents per share, well below the 20 cents per share that Wall Street analysts had predicted. Newbridge's president Alan Lutz resigned and was replaced with executive vice president Pearse Flynn after the company's seventh earnings warning in the last 11 quarters.

Newbridge's woes are even more curious, given the hype and success of high-end networking start-ups like Juniper Networks and Sycamore Networks and recent bullish gains made by Nortel Networks. Analysts say management turmoil and several missteps in strategy has left Newbridge in the mess it's now in. Recovery will require a good business plan and management that can execute a revised strategy, they say.

"They need a road map and that's one thing Newbridge doesn't have," Craig Johnson, an analyst with the Pita Group, said. "They have to decide who they are and what they want to do. In the meantime, they've lost a lot of momentum. And they're missing out on windows of opportunity. If you're not there [in the markets], playing catch-up is almost impossible unless you're the market leader."

During a conference call with financial analysts yesterday, Newbridge chief executive Terence Matthews said the company was developing an overall strategy that will be announced at November 18 press conference.

"We have a small strategy team to make sure we address the issues we need to address and get this engine back on track," Matthews said.

Newbridge is still a leader in asynchronous transfer mode (ATM)-based device offerings, which send voice and data signals over telecommunications lines at high speeds. The company also sells ATM-based high-speed routers and is developing products in the emerging broadband access market.

The firm recently improved its Internet-based product plans by purchasing two start-ups that make high-end Internet Protocol (IP)-based routers and virtual private networking (VPN) technology. VPN products allow service providers to offer business users inexpensive and secure connections to their corporate networks over the Internet.

"They've done a tremendous job transitioning their products to be more IP-oriented," said John Armstrong, an analyst with market researcher Dataquest.

Newbridge has to find some way to put strong, consecutive quarters together, but that task will be tough because the company competes against bigger firms like Cisco Systems, Nortel, and Lucent Technologies for customers.

"A lot of this relates to sales and marketing execution. But their visibility is somewhat limited. They're not on the same scale as the bigger players," said Armstrong.

Johnson of the Pita Group believes Newbridge has to go after optical network equipment, a market in which competitors like Cisco have recently invested heavily and in which Nortel and Lucent already have products.

Johnson said Newbridge made a mistake last December when it sold its 40 percent stake of fiber-optic infrastructure maker Cambrian Systems to Nortel.

"They need to fill in the pieces they don't have and somehow buy the optical or switching optical products to allow them back into the core of the network," Johnson said.

The problem, he said, is that Newbridge doesn't have the funds to purchase a company like Sycamore Networks. He questions whether a hot start-up would even want to be purchased by a struggling firm like Newbridge.

Newbridge is a good acquisition candidate, according to analysts, but company executives have said in the past that the company wasn't for sale.

"Newbridge," Johnson said, "is like a bridge falling down."