Newbridge calls on voice for rebound

Facing a climate in which its traditional business supplying phone companies with switching equipment is heading south and much larger competitors such as Cisco Systems and Lucent Technologies are providing formidable opposition, the company intends to rely on its high-speed data networking devices for a rebound.

That strategy is not new. But Newbridge thinks a series of carefully targeted moves, such as a joint venture announced today with TeleHub Communications to provide links between data and voice networks, can separate them from a pack that continues to throw around the word "convergence" like bits passing through fiber at gigabit speeds.

Under terms of the deal, Newbridge plans to commit $60 million and TeleHub will add an entire 130-person division--its TeleHub Technologies software group--in order to create a new company called Terabridge Technologies. A chief executive will be found to run the new venture within months, according to executives.

The company?s charter will be to provide software links between data networks built using asynchronous transfer mode, or ATM, technology, with traditional voice networks. A resulting "call server" that will transfer voice signals to ATM cells will provide the linchpin for a revised Newbridge strategy based on a switch line called the 4000 DVC and accompanying management tools.

Forthcoming high-speed switches running at 50 gigabits-per-second (Gbps) and 320 Gbps are also expected to enter testing this year, according to executives.

The company hopes it can return to its wide breadth of service provider and phone carrier customers with a set of technologies to facilitate network upgrades and expansions based on data technologies and Internet standards like IP.

"The opportunity for this new type of network model is now," said Brian Jervis, executive vice president for Newbridge?s switching products group.

Executives at Newbridge stressed that much of their technology is available now, with the 4000 DVC hardware and software relying heavily on the company?s current 36170 high-end ATM switch.

The reawakening by Canada?s "other" data networking firm comes amid a swirl of acquisitions and strategy shifts that have left a few large communications companies gunning for the huge market to provide updated equipment to Net access providers, incumbent carriers searching for new markets, and phone companies hoping to lower costs.

"A lot of them are making fundamentally important buying decisions right now," noted Jervis. "Customers are really buying networks, not switch boxes."

On a landscape dominated by multibillon giants like Lucent and Canadian firm Nortel Networks, Newbridge appears small with roughly $2 billion in annual revenue.

But the company?s recently installed executive team remains undaunted.

"If you like war as a school of strategy, when you?re small don?t go and try to do a frontal assault," said Alan Lutz, president and chief operating officer, in a recent interview. "The translation there is don?t try and compete with Cisco on the basis of money--Don?t get into the 'I?ll buy the equipment back' marketing scenario because they will always beat you. You have to mass your forces and attack at a weak spot. That requires agility."

"It?s in the rapid execution that we can stay ahead of the big company," he said.

But staying ahead has been the least of Newbridge?s problems lately.

In February, Newbridge warned that results for the next two quarters may fall short of expectations. The company pegged the expected shortfall on sales slowness in Latin America and an unexpectedly rapid shift away from Newbridge?s classic strength in phone switches.

The company?s phone equipment business, based on time division multiplexing (TDM) technology, once accounted for 85 percent of the company?s sales but has fallen to 35 percent in recent quarters, replaced by high demand for Newbridge?s ATM switches, Lutz said.

But some analysts believe Newbridge?s days as an independent company are numbered. Close partner Siemens has started to open its wallet, looking to enter the lucrative North American market and add data technology to give it a boost. Other international behemoths, like Ericsson, also remain on the acquisition prowl.

Some note that Newbridge has been written off before. "It seems to me like this is déjà vu all over again," said Virginia Brooks, vice president of networking and communications for industry consultants the Aberdeen Group.

But going forward, the firm may not have enough clout amid larger rivals to remain a significant player. "They're looking at big league stuff here," Brooks said, noting the company's revised focus. "It's going to be very challenging for them to keep up with breadth.

"My sense is we're going to see a lot more consolidation in this industry," she said.

Newbridge?s Lutz has other plans. "If we were going to sell [the company], I never would worry about the vision thing," he said, alluding to a new management style he installed upon his arrival last year. "It?s important to unify people. I think we?re substantially in control of our operating expenses now. We haven?t operated on a short term basis at all.

"I?m not positive the analysts understand," Lutz continued. "It?s kind of funny, you deal with Wall Street or Bay Street in Canada and everybody wants to take an aspirin and wake up in the morning and feel well. The loose translation is, 'Well, just give me a quarter and I?ll suddenly feel well.' Transformations don?t happen overnight."