Redback Bows Out With Shortfall

Apparently, Redback Networks Inc. just couldn't resist throwing one more monkey wrench before getting acquired by Ericsson AB (Nasdaq: ERIC).

Revenues for Redback's fourth quarter, which ended in December, will be about $64 million, about 20 percent lower than expected, the company announced late yesterday. (See Redback Lowers Guidance.)

Previously, the company had predicted a revenue increase of 10 percent from the third quarter, which would have put revenues around $78 million.

Even with a December-quarter miss, though, Redback has to be happy with the year it had. Assuming it meets its new target of $64 million, revenues for 2006 will be about $261 million, up 70 percent from 2005.

Of course, many investors don't much care what happens at this point, as long as the pending acquisition by Ericsson, expected to close in February, remains safe. (See Ericsson Offers $2.1B for Redback .)

Redback shares fell 5 cents (0.2%) to $24.80 in after-hours trading. Ericsson was trading down 0.35 Swedish Kroner, just over 1 percent, at SEK28.35 on the Stockholm exchange Friday morning.

Redback has given investors conniptions with earnings surprises during the past year. The stock was pummeled by hints that a coveted Verizon Communications Inc. (NYSE: VZ) contract wasn't such a sure thing, and it soared on word that sales to BellSouth -- now part of AT&T -- would rebound. (See Redback Falls on Verizon Hopes and FCC Welcomes 'Ma Bell' Back.)

So, what went wrong this time? Sales of SmartEdge, the company's flagship product, were just fine, Redback's release says. It's SMS, the older product that's still selling into major customers such as AT&T Inc. (NYSE: T), that disappointed.

The release also mentions "distribution channel disruptions caused by the timing of our proposed acquisition by Ericsson."

Redback didn't indicate whether the delays in the AT&T/BellSouth merger, which finally got FCC approval last week, had an impact. Other equipment vendors seemed to think the delay was hobbling sales. (See Cisco to FCC: Hurry Up! and FCC Welcomes 'Ma Bell' Back.)

Redback says the delayed fourth-quarter purchases should show up in later quarters, so the long-term damage could turn out to be minimal.

Redback plans to announce fourth-quarter earnings on Jan. 30.

— Craig Matsumoto, Senior Editor, Light Reading

Pete Baldwin 12/5/2012 | 3:17:03 PM
re: Redback Bows Out With Shortfall The concern now is that Ericsson might renegotiate terms of the deal ... Simon Leopold (Morgan Keegan) says that might create pressure on the stock ... Mark Sue (RBC Capital) notes Redback could have been had for $19 a share, rather than $25, if Ericsson had waited a couple weeks, a difference of $480M.
indophile 12/5/2012 | 3:17:03 PM
re: Redback Bows Out With Shortfall Swedish culture is not one where you would typically re-negotiate once you have signed off on a deal. The ones smiling to the bank would be key Redback employees who are richer inspite of not delivering.
lightreceding 12/5/2012 | 3:17:01 PM
re: Redback Bows Out With Shortfall Sheesh they could have had it for $1 a share if they had made up their minds a few years earlier.
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