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Riverstone Signs Deal With Tellabs

Light Reading
News Analysis
Light Reading
11/29/2000
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As Riverstone Networks moves closer to an initial public offering, it is signing deals that could help it get out the door.

Today the startup announced an agreement that calls for Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) to resell Riverstone’s high-speed edge routers along with the Tellabs family of broadband access systems like the Cablespan 2300 and MatrisDXX systems. The two companies have also agreed to enter into joint product development.

This deal is very similar to one that Riverstone announced earlier this month with Sonus Networks Inc. (Nasdaq: SONS). In each instance, voice products (from Sonus and Tellabs) are paired with Riverstone’s packet solutions, which will allow service providers to migrate to a converged voice-over-packet backbone.

In the past, Tellabs has attempted to build up its IP offerings. In terms of edge IP solutions, Tellabs doesn’t have anything to fill this need, says Tim Savageaux, infrastructure analyst for W.R. Hambrecht & Co.. But Unisphere Solutions Inc. (Nasdaq: UNSP), one of Tellabs' main competitors, already has a media gateway product for voice and a packet switch solution that has proven to be very successful.

“Unisphere already has this combination through its Castle and Redstone products,” says Savageaux. “This announcement is incremental and sensible, but not gigantic. It’s expected.”

So what does Riverstone get out of the deal? Plenty. Reseller deals are usually good to have, but partnering with an established player that already is selling into some of the biggest service providers around the globe is terrific. In terms of making a mark in carrier networks, this deal could be much more critical to Riverstone’s bottom line than the deal it signed with Sonus just a few weeks ago.

“It’s definitely much harder for us to get in the door of some of the big carriers on our own,” says Andrew Feldman, Riverstone's VP for corporate marketing and corporate development. “Tellabs already has the relationships, and they’re already selling to a worldwide base of customers. They have over 2000 support and sales people at their fingertips. Could we do it on our own? Sure, eventually, but the customers already know the caliber of Tellabs, and that opens a new set of doors.”

This kind of partnership with a large established player also makes Riverstone more attractive to Wall Street. Since September, when it filed for its IPO with the Securities and Exchange Commission, the company has been trying to drum up business among bankers. But the IPO market has been in a slump, and that might not bode well for Riverstone as it prepares to debut.

Even hot optical component companies that have recently gone out are struggling to keep afloat. For example, Luminent Inc., which began trading on November 9, has continued to disappoint investors. After a minimal rise on its opening day, stock was recently trading 45 percent below its IPO price. Pricing was set at $12, only gained $0.25 its first day, and is now at $6.50.

“The IPO market looks a lot less hospitable now than it did a few months ago,” says Savageaux. “But to have partnerships with a recognized player is positive. It’s validation from a well respected company in the industry.”

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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