Optical/IP Networks

Lucent Adds Riverstone to Roster

A partnership centered around Ethernet services is giving a boost to Riverstone Networks Inc. (OTC: RSTN.PK) while extending Lucent Technologies Inc.'s (NYSE: LU) reach in the broadband services realm.

The companies announced this morning an alliance to sell Riverstone's Ethernet routers alongside Lucent's equipment, specifically the Stinger DSL access concentrator. They have already landed one customer together: Spain's Telefònica SA, which will be adding Ethernet services to its "Imagino" multimedia broadband rollout (see Lucent, Riverstone Sign Alliance and Telefónica Uses Lucent/Riverstone Combo).

Riverstone stock took off, climbing 18 cents (25 percent) to trade at 88 cents per share this morning. Lucent investors were more ho-hum, as that stock was down 1 cent (0.31 percent) at $3.17.

For Lucent, the deal supplements a partnership to sell Juniper routers (see Lucent Partners With Juniper). Lucent officials now talk of an end-to-end services play that sets Lucent's Stinger next to Riverstone's Ethernet boxes to deliver services at the edge, feeding everything into Juniper routers at the core.

Lucent spokesman Dick Muldoon confirms this is a reseller agreement only, and that there are "no joint development arrangements, which we do have with Juniper." He says the most likely Lucent products to figure in joint deployments are the Metropolis DMX metro units, the Stinger DSLAMs, and its CBX500 and GX550 ATM and Frame Relay switches, as well as the recently launched multiservice product (see Lucent Joins the Edge Crowd).

But it's Riverstone that really wins out, having garnered the approval – and the sales channels – of a large OEM. Trading in the pink sheets these days, Riverstone is attempting a revival based on Ethernet services (see Riverstone Enters Edge Fray).

To that end, the company has joined the fray for the multiservice edge, where routers would absorb Ethernet, Frame Relay, and other types of traffic, forwarding it all to a single IP/MPLS core. It's a contentious area, where in addition to Lucent competitors include (deep breath) Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Ciena Corp. (Nasdaq: CIEN), Cisco Systems Inc. (Nasdaq: CSCO), Hammerhead Systems Inc., Juniper Networks Inc. (Nasdaq: JNPR), Laurel Networks Inc., Network Equipment Technologies Inc. (net.com) (NYSE: NWK), Nortel Networks Ltd. (NYSE/Toronto: NT), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA).

Here again, Riverstone gets a boost from Lucent. Some companies, such as Hammerhead, consider ATM/Frame Relay to be the more important side of the multiservice edge equation, something Riverstone was lacking amid its Ethernet obsession.

One interesting aspect of the partnership is that it pairs up two companies struggling through highly visible accounting and cost-control issues.

Lucent is fighting to maintain profitability despite flat revenue growth. Layoffs are also continuing, although the company says it has completed its formal restructuring (see Lucent Cuts Target INS and Report: More Lucent Cuts Ahead? ). Earlier this year, Lucent settled SEC fraud charges, paying a $25M fine, but there are still outstanding civil cases against former executives (see SEC Details Lucent Fraud Charges).

Riverstone has its problems too, as if its sub-$1 stock price and a listing in the pink sheets didn't tell you that. Coming up from its own SEC scandal, the company has had to restate earnings for 2003 and 2004. Moreover, the associated auditing process has been fraught with delays, and officials aren't sure when they'll have the three years' worth of audited earnings that are required for a Nasdaq relisting (see SEC Calls on Riverstone, Riverstone Founders Resign, Riverstone Misses SEC Deadlines, Riverstone Files 2003, 2004 Figures, and Riverstone Updates Status).

So does this partnership have legs? Heavy Reading analyst at large Graham Beniston is reserving judgement: "It's way too early to say whether this sort of deployment would be the norm. It's all dependent on the services being used by customers, the traffic mix, and even the regulatory environment. This looks like the sort of setup you'd see where a carrier is building an overlay network for IP TV services," says Beniston, who is hosting a Webinar on this subject, called Multiservice IP in Access Networks, next week.

— Craig Matsumoto, Senior Editor, and Ray Le Maistre, International News Editor, Light Reading

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