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2 16:50 T =Newbridge's West End Sys Affiliate Declares Bankruptcy >NN
By Scott Adams
TORONTO (Dow Jones)--Newbridge Networks Corp.'s (NN) West End Systems Corp.
affiliate is bankrupt.
West End, Arnprior, Ont., has been for sale since August, but wasn't able to
find a buyer, said West End president and chief executive David Brown. Some 83
employees worldwide, including 75 in Canada, are out of work.
The company built voice and data cable modems, which represent an emerging
market. "It was a very capital-intensive business," Brown said. "Most of our
competitors are sponsored by very large multinational companies. Margins are
very low in the early days and it didn't take off as fast as people thought so
there was increased competition."
"Prices dropped probably three times faster than we had ever dreamed," he
added. "It was very hard to find additional money to make the product cheaper.
We had product that worked very well. We have thousands of customers out there
that are running on our stuff. But...it all came cascading down."
Newbridge owned about 30% of West End and has been supportive recently, Brown
said. The company went bankrupt when its credit line was pulled, he added.
Another third of the company was owned by venture capitalists and the other
third by employees and management.
VenGrowth Investment Fund was one venture capital investor. In August 1998,
VenGrowth said it had invested C$6.8 million in West End.
Earlier Friday, another Newbridge affiliate, CrossKeys Systems Corp. (CKEYF),
said it will take a pretax charge of C$1 million, or 4 Canadian cents a diluted
share, in its third quarter because a customer, which turns out to be West End,
CrossKeys Systems Corp. (CKEYF) chief financial officer Steve Spooner said
the third-quarter charge is a one-time event. CrossKeys helped West End Systems
Corp. develop what is called element-management software, used in network
management, in hopes of receiving royalty payments in the future.
Spooner said the royalty payments weren't significant and weren't figured
into the company's financial projections, so analysts shouldn't be cutting
their estimates beyond those for the third quarter. Spooner said the charges
are related to receivables and unbilled work in progress.
Other Newbridge Networks Corp. (NN) affiliates have had more success. Tundra
Semiconductor Corp. (T.TUN) completed an initial public offering this year,
becoming the second public Newbridge affiliate, while Cambrian Systems Corp.
and Advanced Computer Communications were both sold last year to multinational
companies. A Newbridge official couldn't be reached for comment about whether
or not Newbridge will need to take a small charge in connection with West End,
or to confirm whether other Newbridge affiliates have gone bankrupt in the