Eyes on Redback's First Optical Quarter
Why is this important? With the company sitting on a monster stock-market valuation of $24 billion, investors expect big things from SmartEdge, a line of optical networking products the company acquired earlier this year when it gave up 40 percent of its stock to buy Siara Systems for $4.3 billion. So far, Redback has developed and delivered the product on schedule (see Redback’s Siara Box Enters Trials ).
Until now, Redback fortunes have been dependent on a single product line, the Subscriber Management System (SMS). Some critics believe that product line is susceptible to pricing pressue from Cisco Systems Inc. (Nasdaq: CSCO) (see Redback Rallies in Spite of Rumors). The success of SmartEdge, therefore, is crucial to the growth and diversification of the company.
Redback officials declined to comment, citing quiet-period restrictions imposed by the Securities and Exchange Commission.
Light's Reading's informal survey of several analysts shows they expect the company to meet or beat both revenue and profit expections. Analysts' forecasts range from $65 million to $69 million in quarterly revenue, with a two cent net loss predicted by most.
Conrad Leifur, analyst at U.S. Bancorp Piper Jaffray, says he expects SmartEdge sales to add punch to the numbers, exceeding his $10 million estimate for the product.
"We believe there is significant upside to our $66 million revenue estimate (up 36% sequentially) and $0.02 loss per share estimate," wrote Leifur in a research note released on Sept. 21. "We believe the Company's core subscriber management business continues to experience strong demand and has been boosted by ramp-up of SMS 10000 sales, which began to ship in the June quarter."
What this quarter's results will mean for the company's share price is another story. Redback, like many other companies in the next-generation networking market, has risen sharply, based on an established pattern of handily beating estimates. Simply meeting estimates -- or only beating them by a bit -- could raise warning flags that growth is slowing.
Redback's report will kick off the earnings season for most networking systems companies, which will be reporting during the months of October and November.
-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com