Earnings reports

Earnings Warning Turns Redback Blue

Redback Networks Inc. (Nasdaq: RBAK) was supposed to be turning a corner... but apparently nobody foresaw that the turn could take them into a dark alley.

Redback's stock plunged this morning, as the company announced it would miss earnings expectations for the quarter ended Sept. 30.

Revenues will fall between $20 million and $22 million, Redback announced. That's well below the $31.5 million predicted by analysts, according to Reuters Research. The problem comes from delays in customer orders and softness in orders from the Subscriber Management System (SMS) line of products, Redback officials said (see Redback Lowers Earnings Expectations).

Redback stock fell $1.69 (32%) to $3.53 by midday.

Not everybody got it wrong. The announcement was presaged, sort of, in a Sept. 27 note from analyst Mark Sue of RBC Capital Markets. "SMS sales... are likely to continue their downward trend this quarter," Sue wrote, adding that SBC Communications Inc. (NYSE: SBC) and BellSouth Corp. (NYSE: BLS) continue to place "small but steady" orders.

But Sue had expected Redback's revenues to be on target; his concern was a sag in the book-to-bill ratio, which compares incoming orders to completed orders. "We believe the quarter will end for Redback with a book-to-bill below 1.0," he wrote. A ratio of less than 1.0 indicates ordering activity is slowing down.

Naturally, Sue revised his numbers this morning. He now expects third-quarter losses of 15 cents per share for Redback, as opposed to his previous estimate of 4 cents per share. Before today's bombshell, analysts had expected Redback to report losses of 7 cents per share, according to Reuters.

The SMS is Redback's original flagship product, released in 1999 and still in demand at U.S. carriers. "Redback, which typically sees two to three multimillion-dollar SMS orders in the last month of the quarter, likely did not see a materialization of these types of purchases, causing the shortfall in the quarter, in our opinion," Sue wrote in today's report.

Redback is due to announce earnings on Oct. 20.

— Craig Matsumoto, Senior Editor, Light Reading

For more info on the state of industry financials, check out the coming Light Reading Live! event:

sanjose 12/5/2012 | 1:13:21 AM
re: Earnings Warning Turns Redback Blue Redback continues to to have poor software maintenance and features that don't work correctly.

Failure rates on Redback equipment contine to be a problem and reflect a QC problem.

2 major RBOCS and an IXC have brought in Juniper to relive their pain.
ironccie 12/5/2012 | 1:11:08 AM
re: Earnings Warning Turns Redback Blue >2 major RBOCS and an IXC have brought in Juniper to relive
> their pain.

Out of the frying pan and into the kitchen of hype.

Sign In