Newport Needs Another $27M
Newport announced its new stock issue just two days before Christmas, and with the new shares being offered at just 15 pence each, the vendor's share price slumped 26 percent from its pre-Christmas 27 pence to just 20 pence on the London Stock Exchange during the festive period. Today it stands at 21 pence.
That's a far cry from the 150 pence levels the stock was hitting early in 2005 when the vendor and its backers were confident that Tier 1 vendors would start investing in high-end session border controllers (SBCs) that can manage the transfer of large volumes of traffic between IP networks, the market that Newport has targeted from its inception.
It's also a far cry from the 71 pence listing price when the firm joined the public market in May 2004, when it raised £27 million ($47.5 million) before it had even launched its core network product. (See Session Controller IPO Scores Success.)
Newport says the larger deployments it has been targeting at Tier 1 carriers have not materialized as network replacement projects are suffering delays of between six and nine months, and that 2005 revenues will likely be just £1 million ($1.76 million), way below the modest market expectations of £3 million ($5.3 million).
Rivals were quick to pounce on the news of Newport's new issue, which needs to be cleared at an Extraordinary General Meeting (EGM) of investors in London on January 23, suggesting that the company needed the money to survive.
Kevin Mitchell, director of solutions marketing at Newport rival Acme Packet Inc. (Nasdaq: APKT) and former Infonetics Research Inc. analyst, says this is "negative news for Newport. It's not managing to establish its own cashflow, and struggling to establish customer traction. Like many industry segments, there are too many players still in the session controller market, and as time goes on there will be success and failures and consolidation."
Newport strongly refutes claims that it is in any difficulties, noting that it has supplied its technology to 13 customers in the past year, and that big wins are in the pipeline in the coming months. (See Newport Wins Broadnet Deal and Newport Edges Towards Target.)
In particular, the vendor says it's close to securing a major deal, via a major vendor partner, from a Tier 1 carrier that's building out a next-generation network, though Newport declines to identify the prospective customer.
Newport vice president of marketing Mike Wilkinson says Newport needed the extra cash to strengthen its balance sheet "because of the prospects we have in the pipeline." Those prospects include the imminent Tier 1 order that he predicts will be the SBC market's "biggest ever deal."
A lot of SBC contracts to date have been relatively small, says Wilkinson, but major carriers are now gearing up for "network replacement projects," and the "amount of gear we would need to deliver for such a project would be very significant. We need the extra capital to make sure we don't disadvantage ourselves" when the order comes in.
So who could this big Tier 1 carrier be? Newport is believe to be in early trial stages with Telecom Italia (TIM) , but that engagement is not thought to be developed enough to result in an imminent deal.
The company has also been in BT Group plc (NYSE: BT; London: BTA)'s labs, but its main channel there was as one of Marconi Corp. plc 's partners bidding for BT's 21CN project, where Marconi crashed and burned. (See Marconi in Turmoil and Ericsson Buys Bulk of Marconi.)
Other possibilities include Cable and Wireless plc (NYSE: CWP) and any of the Scandinavian incumbents, where Ericsson AB (Nasdaq: ERIC), which has inherited Marconi's strategic relationships, is well positioned. (See Marconi Takeover Cleared.)
Newport will need to deliver something big, and soon, though, if it is to retain the confidence of investors and the carrier community. But the company remains confident, saying that it expects multiple multimillion-pound orders during 2006, and that its potential 2006 revenues pipeline is £40 million ($70.3 million).
— Ray Le Maistre, International News Editor, Light Reading