Riverstone scores another huge deal in Asia, but where are the U.S. wins?

January 7, 2002

4 Min Read
Riverstone Announces Biggest Win Yet

Riverstone Networks Inc. (Nasdaq: RSTN) this morning announced a contract to sell more than 1,000 routers to PowerComm, a subsidiary of KEPCO, South Korea’s National Electric Power Corporation. The equipment will be used to build an all-Ethernet metropolitan area network (see Riverstone Scores Big in Korea).

The deployment, which is a third of the way complete, is concentrated in and around the city of Seoul and will serve some 11 million subscribers. The Riverstone gear will unify PowerComm’s cable and last-mile Ethernet sub-networks, allowing the national carrier to offer its own advanced telecom services, while leasing the network to other service providers in Seoul and neighboring communities.

The deal calls for the deployment of Riverstone’s entire line of products -- from hundreds of its smaller offerings like the RS 1000 and RS 3000, up to roughly a hundred RS 38,000 aggregation switch routers. Riverstone says that it beat out Cisco’s Catalyst 6500 and Catalyst 2900 products to win the deal. Mark Sue, an analyst with Frost Securities Inc., says this bodes well for Riverstone in the short term.

“This shows that they are increasing their presence in Asia where they’ve already won some key contracts,” he says. “They have a competitive product relative to Cisco; it’s higher density, lower price, and has a breadth of interfaces to choose from.”

Steve Garrison, director of corporate marketing with Riverstone, says some of the revenue from the contract has already been realized in the November quarter, but most will be realized this quarter and in the following quarter. A win of this magnitude is not only good news for the company’s bottom line, but it also sends a significant signal to those who questioned Riverstone’s ability to deploy such a large order.

“There has been the perception that Riverstone only serves smaller carriers,” says David Gross, an analyst with market research firm Communications Industry Researchers Inc. (CIR). “This deployment is over 1,000 boxes. It’s good evidence that they can close the sale but also provide service afterwards.”

The size of the deal surpasses Riverstone's previously announced win with Hong Kong's Hutchison Global Crossing (see Riverstone Upstaged by Downgrades). But analysts say it likely won’t excite Wall Street investors too much. While PowerComm is considered a major incumbent carrier in Korea, it is still in Korea. And right now, investors are looking for Riverstone to make a big announcement with an incumbent carrier here in the United States, something it hasn’t yet been able to pull off.

“Not to take anything away from this win, I think it is positive for the company -- but it would be much more significant if they announced an incumbent carrier in the U.S.,” says Sue.

To date, most of Riverstone’s announced customers in the U.S. have been smaller greenfield players like IntelliSpace, in which it holds a significant investment, and Telseon Inc., along with larger CLECs like Time Warner Inc. (NYSE: TWX) and cable operators like Cox Communications Inc. (NYSE: COX) (see Riverstone Edges Out Cisco at Cox). But Sue points out that, right now, incumbent carriers are the only carriers with cash to spend.

Riverstone is likely to face some hurdles in cracking those accounts, says CIR's Gross. Why? Incumbent carriers in the U.S. are still very tied to their Sonet infrastructures. They are much more likely to offer Ethernet services over a Sonet transport network than build out an entirely new Ethernet network. What’s more, even if Riverstone were able to sneak into an incumbent network, it likely wouldn’t be able to pull off a 1,000-router deal as it's done with PowerComm.

Carriers looking to deploy Ethernet over Sonet would be much more likely to use the 15454 optical switch/router from Cisco Systems Inc. (Nasdaq: CSCO), which combines routing with Sonet transport, than gear from Riverstone, says Gross.

“I’d be very surprised to see the PowerComm deal replicated in any network in this country,” he says. “ILECs all have Sonet cores, so Riverstone wouldn’t be able to put its larger aggregation boxes in there. They’d need something like a Cisco 15454.”

Still, others say this should not take away from the significance of the PowerComm win.

“It’s true Riverstone could have a tougher time selling into some carrier segments in the U.S.," says Michael Howard, principal analyst and cofounder of market research firm Infonetics Research Inc. “But the fact remains that PowerComm is deploying one of the largest metro optical Ethernet networks in the world and is using Riverstone gear to do it. This is still a strong proof point for them.”

— Marguerite Reardon, Senior Editor, Light Reading

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