Redback Networks Inc. (Nasdaq: RBAK) exceeded even the most optimistic financial expectations for the third quarter of 2000, reporting net revenues of $80.6 million and an unexpected profit of $3.2 million, or two cents per share. Most analysts had projected roughly $65 million in revenue and a loss of two cents per share.

In a conference call discussing the results Wednesday night, Redback officials said new products, which include the Subscriber Management System (SMS) 10000 and the SmartEdge 800 optical networking platform, accounted for more than 50 percent of the quarterly revenue. SmartEdge accounted for $16 million in revenue for the quarter, 60 percent more than the $10 million that had been expected.

"We exceeded our revenue expecations for the SmartEdge product," said Vivek Ragavan, Redback's CEO. "Our unexpected profit comes two quarters ahead of the profitability date we announced after the Siara merger.

The announced pro forma results excluded certain acquisition-related and stock compensation charges.

Ragavan said the company added 70 new customers during the quarter, bringing its customer list to over 300.

The $80 million in quarterly revenue represents 65 percent sequential growth over Q2 2000 amounts.

During the conference call, several analysts had questions about competition and pricing pressue in the SMS product line, after Redback indicated that overall gross margins had declined during the quarter. Pricing pressure from competitors such as Cisco Systems Inc. (Nasdaq: CSCO) has been a concern among those who follow the company.

Redback officials said the reduced margins were not related to pricing pressure, but rather to manufacturing costs for new products.

"There are no pricing pressures we've found on the SMS product line," said Craig Genter, executive vice president and chief financial officer. Gentner said that gross margins on SMS products ranged from 60 to 70 percent and that that margins on the SmartEdge line range from 40 to 50 percent.

Redback officials said they expect revenue to reach $100 million in the fourth quarter. Revenue growth is expected to grow by 20 percent per quarter in 2001.

-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com