Newbridge scrambles to find buyer

Newbridge Networks Corp. is looking for a buyer, but no offers have yet been put on the table for the communications equipment maker of Kanata Ont., and at least one analyst doubts any offers will be forthcoming.

Last month, Newbridge chairman and CEO Terrence Matthews announced the company was up for sale. Matthews has claimed he has held negotiations with more than one outfit interested in acquiring Newbridge.

But Richard Woo, a technology analyst with Thomson, Kernaghan & Co. Ltd. in Montreal, doesn’t believe any buyers will step forward.

“I guess it’s anyone’s guess why they are saying somebody will buy them,” Woo said.

Matthews has mentioned Nortel Networks, of Brampton, Ont., I.M. Ericsson Telephone Co. Inc., of Sweden, and Alcatel SA, of Paris, as three potential buyers who have expressed interest. However, last month a spokesman from Ericcson denied his company is interested in acquiring Newbridge.

Woo said it’s possible that Newbridge is floating the takeover talk to boost its stock.

Matthews, himself owns 20 per cent of Newbridge’s shares and is thought to be reluctant to sell the company. Over the last two years Newbridge has been the subject of several takeover rumours.

Newbridge has consistently failed to meet market expectations (during six of the previous 10 fiscal quarters) because three critical new products have yet to come to market, sales are slipping in the U.S. and costs remain higher than the industry average, Newbridge president Pearse Flynn said. The company produces WAN switches and wireless products for ISPs, phone companies, cable TV and corporate clients in more than 100 countries.

Matthews is hoping the introduction of a new line of next-generation networking products during the third quarter will revive the company’s flagging fortunes. Newbridge said it would sharpen its product line by focusing on ATM switches, and broadband wireless and digital subscriber line products.

However, Woo said that Newbridge’s problems stem from the fact that new technologies, such as optical switching and IP are proliferating and there’s only a limited window for growth in ATM, Newbridge’s bread-and-butter market.

Initially, ATM was viewed as the future of networking as it was both a LAN and WAN technology starting at the enterprise desktop and reaching all the way through the campus and WAN to the remote office. The ability of ATM to provide QoS was thought to be a way of delivering real-time videoconferencing from desktop to desktop. Unfortunately for ATM suppliers, Ethernet, a cheaper technology, now dominates the LAN market and faster Ethernet variations are pushing into the campus.

However, ATM is still widely implemented as a backbone technology by major enterprises and all the major ISPs.

For this reason Iain Grant, managing partner with Brockville, Ont.-based Yankee Group in Canada, said a partnership between Cisco Systems Inc. and Newbridge would be a good fit for both parties.

“From what we see that role (of ATM as a backbone technology) is going to continue. It (ATM) will persist as we look at more static routes than routed routes taking place in the cores of networks,” Grant said.

Grant noted there are a number of advantages that Cisco might derive from working closely with Newbridge, chief among which would be Newbridge’s expertise in ATM.

From Newbridge’s perspective, Cisco’s sales and marketing force would certainly help, Grant said. He added that over the last 18 months Newbridge has lost its sales and marketing focus and a partnership with Cisco would go a long way to solving this problem.

“Cisco would certainly give it (Newbridge) a sales force to reckon with,” Grant said.

According to Grant, with the growing convergence of voice and data a merger with Newbridge gives Cisco a company that really understands this convergence.

Grant argued that the troubles Newbridge is facing are “mostly the troubles of Bay Street’s imagination” and the company is still a Canadian success story.

“They’re not really in a hole at all. They’re really in a hole in terms of the expectations of the financial analysts. Technologically they are still amongst the leaders in terms of their reputation with their customer base. They are still highly thought of in terms of their ability to pay their rent and meet their bills when they’re due. We are not looking at a Gandalf (Technologies Inc.) here. We are looking at a success story, only not quite as successful as Bay Street and Wall Street wanted them to be,” he said.

As part of its future strategic direction Newbridge has announced it will cut at least 700 of its 6,200 employees (over 10 per cent of its global workforce). The company will cut costs by “streamlining” operations, particularly in administration, and outsourcing some manufacturing and customer service operations. Some sales and field service offices will be closed as the company lines up a strategic partner to handle some of the duties.