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Riverstone Savaged on Warning

Light Reading
News Analysis
Light Reading
2/28/2002
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Wall Street slashed Riverstone Networks Inc. (Nasdaq: RSTN) today after the company warned that fourth-quarter revenues likely won't meet expectations when they're announced March 26.

By early afternoon, Riverstone shares were trading at $3.88, down $3.71 -- a stunning 48.88 percent.

Blaming weakness in February orders from U.S. and European customers, the company announced that revenues for the quarter that ends Saturday will fall between $50 million and $54 million -- considerably below analyst consensus of about $64 million.

Riverstone plans to fight back by cutting its cost structure by 10 percent, resulting in a fourth-quarter charge of $26 million to $30 million related to cuts that include workforce reductions. So far, specific numbers aren't available. But execs insist they won't be cutting R&D, since they want to be ready for the anticipated market resurgence later this year.

"We will not compromise our future... We want to be well positioned later this year," said CFO Robert Stanton in a conference call with analysts this morning. Execs also said they expect RBOC business to pick up in the metro space during the second half of 2002.

Executives said that even as contracts with carriers such as Cox Communications Inc. (NYSE: COX) continue to build up quarterly earnings, other metro customers -- including U.S. prospects and European independents and PTTs -- delayed action on ongoing orders in February and failed to issue new ones.

Despite these woes, Riverstone says business is still strong in the Asia/Pacific region, specifically in Hong Kong, China, and Korea, where the company earned 44 percent of its revenues last year.

The company also insists it's on track for ongoing growth. "Nothing has fundamentally changed in our business; it's just that [carrier] spending patterns have slowed down temporarily," said CEO Romulus Pereira.

Analyst reaction seems to be a mix of dreary resignation in general and concern over Riverstone specifically. Most say carriers involved in the metro space -- including the likes of Qwest Communications International Inc. (NYSE: Q) and smaller players like Telseon Inc. and Yipes Communications Inc. -- continue to be hit hard, despite the uptick in the overall economy.

Evidence that investors think Riverstone's woes emanate from a general slowdown in the metro carrier market was evident, as rival Extreme Networks Inc. (Nasdaq: EXTR) took a hit in its share price today as well, trading at $7.02, down $0.73 (9.42%) early this afternoon.

"Service providers aren't willing to invest in new services at this point," says William Becklean of Commerce Capital Markets, though he acknowledges a general feeling that RBOCs will be investing more in the metro market this year.

But others say Riverstone shouldn't count on the RBOCs: "There will probably be some [RBOC] activity during the second half, but how material it will be appears to be in question," says Erik Suppiger of Pacific Growth Equities.

Some say Riverstone is falling prey to problems common to many new public companies. "About a year after IPO, growth becomes increasingly challenging," says Mark Sue of Frost Securities Inc. Riverstone's performance over the next few quarters will be crucial to its ongoing health, he says, because it will indicate whether the company can sustain solid growth.

The question isn't new: Even in January, when the company announced a big contact win in South Korea, analysts wondered whether Riverstone can get sufficient traction with large U.S. carriers to keep its momentum (see Riverstone Announces Biggest Win Yet). Now, apparently, they're wondering even more.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

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sigint
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sigint,
User Rank: Light Beer
12/4/2012 | 10:51:08 PM
re: Riverstone Savaged on Warning
dietary,

while i agree with most of what you say, i still believe that the mechanism needs to change. there are reports which language along the lines of "competent reviewers from telecordia carefully vet TL1 code as part of the OSMINE compliance process". By implication, it would appear that the rest of the world is incompetent !

does a syntax check (albeit by very component reviewers) deserve millions of dollars ? couldn't the same job be done much more economically by proper tools, which could possibly be supported by telecordia ?

i do not grudge telecordia their right to make money. they can do so in the form of royalties on every box SOLD rather than a massive fee for every product that a vendor HOPES to sell. there's a vital difference between the two arrangements, and the latter proves to be a serious entry barrier and an impediment to innovation.

the tricky part, as you rightly suggest, is seamlessly incorporating any changes in future releases. however, this problem is not insurmountable. attitudes need to change - the rest is easy.
ajo2
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ajo2,
User Rank: Light Beer
12/4/2012 | 10:51:14 PM
re: Riverstone Savaged on Warning
>I think you completely misunderstand OSMINE
>...[snip]
>Again, I go back to my question....How does the RBOC gain?


dietaryfiber,

I think you completely misunderstand our point, or at a minimum, are ignoring it. Yes OSMINE makes it easy for the RBOC's. We never said it didn't. Our point is that the practice of requiring equipment vendors to pay someone else an entry fee to play is unfair, and if the system was set up correctly, unnecessary.

RBOC's would gain a better product at a lower price if they would be open to buying from someone besides Telecordia. But the RBOC's have never been about lower prices or better products (to their end customers, I mean), so why should we expect them to change now?
dietaryfiber
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dietaryfiber,
User Rank: Light Beer
12/4/2012 | 10:51:29 PM
re: Riverstone Savaged on Warning
sigint,

I think you completely misunderstand OSMINE. Why you pay Telcordia is to model your equipment into their applications. The result is a series of TL1 commands to perform various functions on your box. With NCON, TL1 will be replaced at least partly by CORBA. So, depending upon the kind of box you have and what applications you wish to be integrated into the charges vary.

The RBOCs have paid for and receive maintenance releases of the various Telcordia applications and in one of the future releases (depending on when you start) your product will be modelled into the process. This way the RBOC can use its standard OSS systems to manage your equipment. How you build these interfaces and deploy them relative to your equipment is strictly up to you.

Each RBOC does utilize most of the same applications but has separate emphasis on each one of the applications.

So, to create a standard "model" in the SNMP model would be for the RBOCs to specify which MIBs and MIB objects will be supported on each and every kind of network element. This would likely limit innovation as new equipment would have to model the same information (thus be architecturally similar) to existing equipment. In the current method, these models are owned by the equipment vendor. Thus, competing product architectures are easier to integrate and deploy.

This last bit may not be clear to you, but think of it this way. Lets say that the Router Model chosen was a Cisco Model. You wanted to make a router that had the same interfaces but worked differently internally. This difference gave you advantages in different price/performance points in the network. In the current method, this is straightforward. I am not sure specifying the models will get you to the same point.

When people talk about OSMINE as a scam or a monopoly, remember it does not belong to the RBOCs but Telcordia. The RBOCs pay money for the applications and for maintenance. Vendors pay money to get the products modelled. Telcordia does the OSS coding and sells this to the RBOCs. Thus, in many ways its simply the "cost of doing business" in an RBOC.

Your model would have a carrier with 60 million endpoints putting its business systems in the state of a model where support and quality would be dubious. Today, the applications are supported by Telcordia. In your model, by whom? Again, I go back to my question....How does the RBOC gain? Well, clearly OSS purchase costs would go down. How about lifecycle costs? What happens if a vendor exits a product market? Is there ongoing maintenance for deployed equipment? I see merit in your idea, just not sure its ready for prime time yet.

dietary fiber
sigint
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sigint,
User Rank: Light Beer
12/4/2012 | 10:51:31 PM
re: Riverstone Savaged on Warning
dietaryfiber said ..

As for OSMINE, I think that one should assume that this will be their FOREVER and put it in your business plans to spend several million dollars (paid to Telcordia by the way - not the RBOCs). Why should they deploy a product that is not modelled in their OSS systems? What is the gain on that for the RBOC?
__________________________________________________

Can't the requirements of OSMINE be published so that vendors design systems accordingly ? Wouldn't that save time and money for vendors ?

During the anti-trust litigation against Microsoft, one of the suggestions was to make the Windows OS open-source. The same logic could apply in this case.
let-there-be-light
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let-there-be-light,
User Rank: Light Beer
12/4/2012 | 10:51:39 PM
re: Riverstone Savaged on Warning
"Nothing has fundamentally changed in our business; it's just that [carrier] spending patterns have slowed down temporarily..."


in other words:


"golfing is just as pleasant as it ever was..."
Metadata123
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Metadata123,
User Rank: Light Beer
12/4/2012 | 10:51:40 PM
re: Riverstone Savaged on Warning
Optical_man,

I want industry leaders to survive too; but not a bunch of rascals who have been conning the public time and time again. I along with countless others listened to their Metro Ethernet story and got conned. We now know that these guys were pulling wool over our eyes, while unloading their own positions.

Just look at the names of the individuals who have been selling out at http://biz.yahoo.com/t/r/rstn....

Even as they were selling hopes and dreams to analysts. Hopes and dreams that are being mercilessly dashed at the altar of their vanities. In January and February when these individuals were selling in extremely large amounts, they knew fully well what was coming. And the rest of us did not.

So dont be an apologist for the charlatans. They deserve jail time. Just like the Enron dudes. And Optical_man, there are not too many folks are Light Reading who sympathize with those like you who support con artists. We are seeking real companies with real technology. Not criminals with a huge marketing budget.
flanker
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flanker,
User Rank: Light Beer
12/4/2012 | 10:51:40 PM
re: Riverstone Savaged on Warning
"Nothing has fundamentally changed in our business; it's just that [carrier] spending patterns have slowed down temporarily..."

Somebody should explain to Riverstone's CEO that a decline in customer orders is a material event.
optical_man
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optical_man,
User Rank: Light Beer
12/4/2012 | 10:51:40 PM
re: Riverstone Savaged on Warning
metadata,
I think I see the supposedly massive insider trading you are talking about in January.
If you've never been at a startup, here's how it works:
Among other things, you can do an ESPP. That's where you buy your companies stock (in lieu of salary) for 6 months or so. You get to buy at the lock in price (if you were there preIPO then it's IPO price or less (maybe a dollar a share). On the day you buy, after the 6 month period, you sell for whatever the market rate is and pay 38% tax. (if you hold for a 20% rate, you may pay amt, and if the price has collapsed then you owe uncle sam millions).
Apparently, these guys had that. Nothing illegal about this. Any company that goes IPO has this. So, if say, Dorsal went IPO in May, you could expect this event to occur every 6 months after the ipo date (or thereabouts)
Make sense now?
optical_man
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optical_man,
User Rank: Light Beer
12/4/2012 | 10:51:40 PM
re: Riverstone Savaged on Warning
Author: Metadata123 Number: 12
Subject: Re: Insider Trading Date: 3/1/2002 4:14:45 PM
"So dont be an apologist for the charlatans. They deserve jail time. Just like the Enron dudes. And Optical_man, there are not too many folks are Light Reading who sympathize with those like you who support con artists... "

Oh, come on. If I don't support you, then I support CON Artists? That's pretty narrow minded thinking.
I looked at Insider Trading on Yahoo (your link didn't work for me). Are you telling me that their was MORE trading in Jan/Feb? Not. The levels were high, but no higher than all of last year. Couldn't you see the pattern? Couldn't you get out?
As to your attack about being 'conned' by them and their Ethernet story, how many times are you going to be conned?
Theirs was not a new story, it's been told for decades. Back in the 80's some clown in Redmond was talking about a 'pc in every home' and then a 'pc on every desk'. He was successful, so he's not a con, while he pulled a few BILLION out of his company. But the guys who have their companies suffer during a historically bad economic time are Crooks?
If this is your first time being conned, then I'm sorry. If this is the 2nd or 3rd time you bought into the 'hype and the glory' then that's your problem.
"Fool me once, shame on you....Fool me twice, shame on me"
Metadata123
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Metadata123,
User Rank: Light Beer
12/4/2012 | 10:51:41 PM
re: Riverstone Savaged on Warning
Optical_man,

I want industry leaders to survive too; but not a bunch of rascals who have been conning the public time and time again. I along with countless others listened to their Metro Ethernet story and got conned. We now know that these guys were pulling wool over our eyes, while unloading their own positions.

Just look at the names of the individuals who have been selling out at http://biz.yahoo.com/t/r/rstn.....

Even as they were selling hopes and dreams to analysts. Hopes and dreams that are being mercilessly dashed at the altar of their vanities. In January and February when these individuals were selling in extremely large amounts, they knew fully well what was coming. And the rest of us did not.

So dont be an apologist for the charlatans. They deserve jail time. Just like the Enron dudes. And Optical_man, there are not too many folks are Light Reading who sympathize with those like you who support con artists. We are seeking real companies with real technology. Not criminals with a huge marketing budget.
dietaryfiber
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dietaryfiber,
User Rank: Light Beer
12/4/2012 | 10:51:43 PM
re: Riverstone Savaged on Warning
ajo2,

I guess my point would be that even when the CLECs existed, they were not deploying on the same scale as the RBOCs and could live with different requirements. Now that they are dead, its hard to hold them up as a model of how to run a business.

The RBOCs want to make sure that products really work and that often means letting other people work out the kinks a bit (today that might be the IOCs). Why should they put their network at risk for a brand new platform of unknown product quality. You must admit that "startup" quality can be an oxymoron.

I think the RBOCs find their own processes onerous and would like to work to streamline them. As for OSMINE, I think that one should assume that this will be their FOREVER and put it in your business plans to spend several million dollars (paid to Telcordia by the way - not the RBOCs). Why should they deploy a product that is not modelled in their OSS systems? What is the gain on that for the RBOC?

dietary fiber


dietaryfiber
ajo2
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ajo2,
User Rank: Light Beer
12/4/2012 | 10:51:45 PM
re: Riverstone Savaged on Warning
I agree with the ideas in your message, but I think you let the RBOC's off the hook just a bit too easily.

Yes they are slow to adopt new technology due to qualification timing, followed by network planning and rollout - but are those the only reasons they are slow? The good CLEC's go through much of the same processes, let can move to deployment in 6 months rather than the RBOC's ~18 months. This pretty much insures that the RBOC's are using something that is at one or two generations old. Do they have to have the latest stuff? Probably not. But my point is that they are inefficient.

And then we have the OSMINE ripoff. It's like a cover charge at an auction... a million dollar cover charge. I'm not saying the end result is not needed (a unified management interface to equipment), but requiring companies to pay someone else to make it standardized seems vaguely illegal.

To summarize, you are right that the RBOC's are unfairly picked on, but they aren't as blameless as you make them sound.
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/4/2012 | 10:51:49 PM
re: Riverstone Savaged on Warning
Is the US telecom equipment industry showing the dysfunctional signs of Japanese electronics industry (chronic overcapacity, overinvestment, unwilling to rationalize industry structure ...)
____________________

The latest indications suggests to me that the programming won't be made available any time soon. And most folks in the midwest will likely pass on always-on.

Its going to take awhile unless somebody else shows up who likes polka festivals.

PS. By 2007, AMAT says to expect 1B transistors running at 20GHz. (Today its 42M at 2GHz).

Those controlling the intellectual property to drive the advances in the underlying technology will be the ones to watch, in my opinion.
dietaryfiber
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dietaryfiber,
User Rank: Light Beer
12/4/2012 | 10:51:50 PM
re: Riverstone Savaged on Warning
Deadbeat,

I find that your message reminds me of many who try to sell to the RBOCs. Their is a presumption of a good product and that the RBOCs either 1) don't care about that technology, 2) are too stupid to deploy these wonderful products, and 3) want something (say OSIMINE as an example) that is looked on as a legacy requirement. I find this usually comes from people who are shocked that the RBOCs technologists and people have opinions of their own. In addition, they have needs that span many organizations within their company from Ops to Planning to the Field. When these requirements are laid down (and this is one of the things that takes time) people find that they are going to have to do custom development to win the business. Suddenly, they walk away and claim that the RBOCs are filled with dinosaurs.

People that regularly sell products to these companies face the same obstacles. However, they face them differently. They recognize that the RBOC is looking to do business on a scale that is significantly different than an Enterprise. They recognize that it takes time and money for the RBOC to certify and deploy new technology. They recognize going in that there is over a year and millions of dollars they need to commit to turn an RBOC up on a new product.

So companies have a couple of choices. First, they can evaluate if they want to be in the RBOC business. If they answer yes, then they must sign themselves up for an arduous process of getting the product approved. They can expect to be hammered on price and they can expect a second vendor. This is the deal. It doesn't change and stamping your feet (even if you are Cisco) can't make the RBOC (a company many times your size) change.

dietary fiber
optical_man
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optical_man,
User Rank: Light Beer
12/4/2012 | 10:51:50 PM
re: Riverstone Savaged on Warning
Author: Metadata123 Number: 5
Subject: Insider Trading Date: 3/1/2002 8:11:02 AM
Even after I left this message on Feb 6, the execs in the know at RSTN, have been bailing out.
http://www.lightreading.com/bo...
If this is not insider trading, I don't know what is.

Meta,
Yes this is 'insider trading'. It is legal.
I believe you are referring to trading on 'insider information' which is not.
However, if you noticed this pattern back in January (like your message suggests), with all we've learned about Enron, I'm assuming you liquidated your riverstone holdings, correct?
It is not wise to notice a pattern in a stock and hold it, while sending out anonymous emails warning others of the practice.
Good luck and go back to Yahoo with this crucial information. Everyone here wants the industry players to survive.

Metadata123
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Metadata123,
User Rank: Light Beer
12/4/2012 | 10:51:51 PM
re: Riverstone Savaged on Warning
Even after I left this message on Feb 6, the execs in the know at RSTN, have been bailing out.
http://www.lightreading.com/bo...

If this is not insider trading, I don't know what is.
Deadbeat
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Deadbeat,
User Rank: Light Beer
12/4/2012 | 10:51:54 PM
re: Riverstone Savaged on Warning
Rstone w/o an enterprise strategy is like rowing a boat with one oar...
They have decent products and market them well but w/o the push thru that the ILECs expect coupled with the fact that their interest in MAN buildout is purely intellectual at this point dooms Rstone to the networking ashheap...

The real victim is the consumer in that the LECs don't really give a s..t about providing ethernet based services as that cannibalizes their hugely profitable circuit business.

Plus, the products from RS and their competitors are not really 'carrier ready' the way their existing SONET products are so SBC, Verizon, Qwest et al will just sit on their respective behinds for at least another 18 months before they do jack...any startup aimed at the MAN business better have a boatload of cash and lots of patience...existing outfits better retool and look for other paying customers...
blank_reg
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blank_reg,
User Rank: Light Beer
12/4/2012 | 10:51:57 PM
re: Riverstone Savaged on Warning
Riverstone, like many niche players are still following the old rules. They have a good product in an area a big player does not compete, but they need to get bought.

They are focused on one type of network, in this case Metro Ethernet. When they do get competition, then they discount like crazy to win maretshare. Once you lower your price, you cannot go back and raise it back up later.

Before a big player would want to buy them in order to grab that marketshare. Today the big players are either walking wounded like Nortel or not making an big plays like Cisco. Riverstone has a good product, but does not make a profit, and will run out of time.

Blank Reg
DoTheMath
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DoTheMath,
User Rank: Light Beer
12/4/2012 | 10:51:58 PM
re: Riverstone Savaged on Warning
I'm starting to wonder - Is any large systems play start-up still viable given the headcount necessary to get product to market, and even then, will there be enough customers buying to warrant the previously nose-bleed level pe ratios? Does anyone see a technology area that incumbants will really have to buy into?
-------------------------------------------

Consider that the VCs are *still* funding more outfits, and makes you wonder.

Is the US telecom equipment industry showing the dysfunctional signs of Japanese electronics industry (chronic overcapacity, overinvestment, unwilling to rationalize industry structure ...)

It is self-evident that 15 core router (substitute your favorite equipment category) companies cannot survive. Yet, each VC thinks theirs is the "chosen one".

Yeah, I got hit big on Riverstone too. I thought I paid a pretty good price, in the post Sep 11 lows.
docsisdude
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docsisdude,
User Rank: Light Beer
12/4/2012 | 10:52:00 PM
re: Riverstone Savaged on Warning
Seems the kmart of nextworking companies is going the way of kmart.

I'm starting to wonder - Is any large systems play start-up still viable given the headcount necessary to get product to market, and even then, will there be enough customers buying to warrant the previously nose-bleed level pe ratios? Does anyone see a technology area that incumbants will really have to buy into?

perhaps i'm just pesimistic as my pocketbook took a serious hit today.
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