Metro Hopes Float on Riverstone

Last night Riverstone Networks (Nasdaq: RSTN), a metropolitan area equipment provider, announced its first-quarter earnings, beating analyst expectations with a narrower loss than expected (see Riverstone Closes 1st Quarter).

Pro forma net loss for the quarter was $0.03 per share, compared with a loss of $0.06 per share the previous quarter. Executives on the conference call with analysts said that they expect a $0.01 loss for the year and that the company should be profitable by the third quarter.

Analysts and vendors have been saying it for months, but the metro area network seems like the place to be these days. As companies like Nortel Networks Corp. (NYSE/Toronto: NT) and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) warn of disappointing quarters (see Nortel's Nuclear Winter and Tellabs Tanks on Warning), companies like Extreme Networks Inc. (Nasdaq: EXTR), Foundry Networks Inc. (Nasdaq: FDRY), and Riverstone -- all metropolitan area network Ethernet players -- are reporting positive outlooks (see Extreme, Foundry Get Happy ).

“We’re definitely hot,” said Romulus Pereira, president and chief executive officer of Riverstone, in an interview after the conference call. “Our results show that the metro is the light at the end of the tunnel for the malaised Internet. Carriers have been grappling with how they can make money from access, and they’ve realized that the money is in services. The metro is ground zero for that, and we plan to be a market leader.”

All in all, the company’s quarter looked good. Revenues grew 26 percent to $44.2 million, compared with last quarter’s revenue of $35.1 million. Gross margins also improved to 56.8 percent, a sign that the company has been able to handle pricing pressure from its competitors.

Pereira attributed the strong quarter to Riverstone's broad customer base and its differentiated product offering, which includes multiservice protocol switching (MPLS) and resilient packet ring (RPR) technology on its edge routers. Only one customer, IntelliSpace accounted for more than 10 percent of the company’s sales for the quarter.

“They expanded overseas, and these sales were the result of shipping ahead of installation,” said Pereira. “Our business is diversified enough that in any given quarter any one of our customers could account for 10 percent of our sales.”

Pereira also said the company had started shipping its first products to Qwest Communications International Corp. (NYSE: Q), a deal it won through its partnership with Sonus Networks Inc. (Nasdaq: SONS). While the amount of the contract hasn’t been disclosed, he said he expects it to be a long-lasting one that should generate significant revenue.

The company added several new customers this quarter, including, Retevision, Telia AB, Videotron, Shanghai Post and Telecom, UECOM, Storm Telecommunications Ltd., and CompleTel. Other steady customers, like British Telecom (BT) (NYSE: BTY), Verizon Communications Inc. (NYSE: VZ), and UUNet, remained at the top, too. The company also had strong sales through its OEM agreements with Sonus, Tellabs, and ZTE.

As part of its diversification plan, the company said it saw strong growth overseas. While the percentage of sales dipped downward from 42 percent last quarter to 39 percent this quarter, the company expects to see stronger growth in Europe and Asia as it continues shipping products through its reseller partner ZTE in China.

As far as products go, the company saw a roughly 60/40 split in sales of large-chassis-based products like its RS 8000 and RS 32,000, versus its smaller products like the RS 3000. Its newest product, the RS 16,000, announced earlier this month at Supercomm, is expected to be a big seller in subsequent quarters, adding to the growth in sales of the chassis-based products (see Riverstone Goes Dense). This is good news, considering that the chassis products tend to have higher gross margins, said Pereira.

But the quarter wasn’t entirely without concern. On the conference call, Robert Stanton, chief financial officer told analysts that DSOs (days sales outstanding -- the number of days it takes customers to pay up) went up to 55 days versus 52 days in the fourth quarter of last year. Inventory levels were also up.

In after-hours trading yesterday, Riverstone was trading up to 19.40 per share, according to Instinet, for a daily gain of about 13 percent. But this morning the stock fell 0.79 (4.15%) to 18.24.

- Marguerite Reardon, Senior Editor, Light Reading

jones1 12/4/2012 | 8:12:13 PM
re: Metro Hopes Float on Riverstone Everyone is talking about optical ethernet. Can any of these vendors provide carrier class traffic with optical ethernet ?
A service provider would definitely like to see
this feature to replace SONET in the metro space.
Any of the above vendor? I doubt so.
skeptic 12/4/2012 | 8:12:11 PM
re: Metro Hopes Float on Riverstone Everyone is talking about optical ethernet. Can any of these vendors provide carrier class traffic with optical ethernet ?

Probably. But it all depends on where in the
ISP (and what kind of ISP it is) you want to
put the optical ethernet.

I dont think it solves the profit problem at
most ISPs though. If SONET were the only problem
at ISPs, it would have been fixed a long time

The problem I have is that the biggest cheerleaders among the ISPs for ethernet are the
same people who (seem) to run the most disorganized networks and who typically think
another truckload of routers is the solution
to every problem.

The other thing to keep in mind is that any
technology (including ethernet) is appropriate
to a certain set of problems. If you try to
solve the wrong problems with it, its not going
to work.
mikeward 12/4/2012 | 8:12:01 PM
re: Metro Hopes Float on Riverstone Would anyone care to provide a quantitative definition of carrier-class? It's so overused that it seems almost meaningless.
testbot 12/4/2012 | 8:11:44 PM
re: Metro Hopes Float on Riverstone Five 9s
skeptic 12/4/2012 | 8:11:43 PM
re: Metro Hopes Float on Riverstone Five 9s
Hardware or software?

Measured how?

I agree that carrier class has been so over-used
that its now meaningless. Vendors quote numbers
(like 9's of availability) without even understanding what they really mean. And
almost none of them do sustained testing to try
to prove availability.

Much of the time it seems to translate to a few
features (like APS for sonet) and selecting parts
with a certain method.
joe_average 12/4/2012 | 8:11:42 PM
re: Metro Hopes Float on Riverstone Agreed!

There are litteraly dozens of parameters which define a product as carrier class. In-service availability (5 '9's) is only one of them.

Take GR-499 as a guide. If you meet all those requirements (and there are 598 of them), then you are well on your way to being "carrier class".

Of course every customer has a unique determination of what constitutes carrier class.
tony1athome 12/4/2012 | 8:11:28 PM
re: Metro Hopes Float on Riverstone Some of the voice vendors claim 5 9's today. I don't know of anyone on the data side who can.

mikeward 12/4/2012 | 8:11:28 PM
re: Metro Hopes Float on Riverstone Isn't the Five 9s an aspiration rather than a good example of what's possible today..? Does any vendor (or can any vendor) achieve that metric?
Sign In