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Cabletron Floats Riverstone

Light Reading
News Analysis
Light Reading
9/18/2000
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Riverstone Networks (proposed Nasdaq: RSTN) filed for a $200 million IPO today. The switch-router vendor is a spinoff of Cabletron Systems Inc. (Nasdaq: CS) and officially became a subsidiary of that company in June, along with three others that also split from Cabletron (see Cabletron Restructures).

Spinning out Riverstone into an IPO allows the almost defunct Cabletron to milk maximum value out of its switch-router product line. But it creates three problems for the new and much smaller entity, according to the S-1 filed by Riverstone with the Securities and Exchange Commission.

First, Riverstone may not now have the buying power required to negotiate a guaranteed supply of key components. "After we separate from Cabletron we will be a smaller company, without the volume purchasing power of Cabletron, which may impair our ability to acquire components that are in high demand," it states.

Second, it makes it harder for it to offer equipment financing deals to service provider customers. The fact that it does not have Cabletron's more extensive financial resources "...could adversely impact our ability to provide or arrange and support customer financing," the S-1 says.

Third, the way in which the spinoff deal is structured restricts Riverstone from using its stock to buy other companies, or reward employees or customers. Startups that do not face the same limitations "have a significant competitive advantage over us," it says.

Riverstone reported roughly $23 million in revenue for fiscal 2000, but had losses of $37 million. From March through June 3, 2000, the company lost $12.2 million, according to the S-1.

So much for the bad news. On the positive side, unlike many startups trying to make a go of things in the IPO market, Riverstone already sells to a wide variety of customers, including large carriers like AT&T Corp. (NYSE: T), British Telecom (NYSE: BTY), and Cable and Wireless (NYSE: CWP), as well as next-generation providers like Telseon and Vitts Networks.

“They have a lot of momentum, and the name is slowly getting out there,” says Scott Clavenna, president of PointEast Research. “The timing makes sense. They have a good stable of customers, and what is needed now is more visibility.”

The company has also been expanding its product portfolio (see Riverstone Flows Toward Gigabit Ethernet). Today it announced the RS 3000 Optical Metro Access Router, a device that plugs the gap between its larger edge routers -- the RS 32000 and the RS 8000 -- and its smaller customer premises router.

Two things make this product stand out. First, it supports multi-protocol label switching (MPLS). Second, the vendor has integrated wavelength-division multiplexing (WDM) into the router. This means that it can connect directly to fiber without the need for an intermediate device.

Support for MPLS and WDM should help the 3000 stand out from the large field of competitors, which includes Cisco Systems Inc. (Nasdaq: CSCO), Extreme Networks Inc. (Nasdaq: EXTR), Foundry Networks Inc. (Nasdaq: FDRY), Juniper Networks Inc. (Nasdaq: JNPR), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Siemens AG (Frankfurt: SIE), as well as other smaller public and private companies.

-- Marguerite Reardon, senior editor, and Stephen Saunders, US editor, Light Reading, http://www.lightreading.com

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