Redback Edges Into Qwest
This announcement is a big deal for Redback, coming days after a $120 million contract with Williams Communications Group (NYSE: WCG), which will deploy several SmartEdge boxes in its metro networks and long-haul networks over the next two years (see Redback Lands Deal With Williams ). Brean Murray & Co. Inc. analyst Gina Sockolow, in a note to clients, estimated the Williams deal could represent 10 percent and 20 percent, respectively, of Redback's SmartEdge revenues for fiscal years 2001 and 2002.
Qwest, one of the larger carriers, represents a key battleground with Cisco (see Redback's Qwest Deal: Optical Upside?), one on which investors and analysts have been eagerly awaiting the outcome. The SmartEdge platform is a distant second behind Cisco's ONS 15454 -- which boasts 22,000 systems in more than 500 customer locations with an annual revenue run rate of more than $1 billion -- but Redback appears to have beaten Cisco in the bid for a significant carrier customer.
Redback's other SmartEdge customers include Genuity Inc. (Nasdaq: GENU), Cable and Wireless (NYSE: CWP), Cistron Telecom, and Hargray Communications. Redback officials have only given specific contract details on the Williams deal and won't say how much its SmartEdge platform contributes to the company's overall revenues or how many SmartEdge boxes it's shipped to customers.
How does the company plan on winning against Cisco? Redback's marketing and sales pitch is about density and flexibility, according to Larry Blair, vice president for marketing.
"The SmartEdge has great advantages in terms of density, size, power, and future migration path," Blair says. Blair also says that the SmartEdge 800 has a five-year shelf life, as opposed to the two-year shelf life of competitors' products, a point that's not lost on large carriers. "First they want connectivity, then improved network efficiency, then they want converged IP services."
Industry analysts have given Redback credit for better data handling and service creation capabilities than Cisco's offering (see Redback Completes IP ASICs). And, in places like Williams and Qwest's networks, the SmartEdge can offer routing on a TDM (time-division multiplexing) platform without requiring a forklift upgrade.
But the game is Cisco's to lose. It got to market first with a cheaper Sonet solution that, despite having IP data capabilities, is mostly used as an OC48 add/drop box in metro rings. And only Cisco can turn its enterprise customers onto a carrier's telecom services in exchange for optical equipment buys from that carrier.
Further, as carrier networks evolve, so must Redback's business model. The SmartEdge 800 is a lower margin product that sells into a larger, more competitive market than Redback's subscriber management products. But as it lands more big deals with big carriers, the product's material costs will drop, which will be welcome news for investors.
Partly due to this Qwest announcement, Redback shares rose $4 (10%) to 44.25.
Representatives of Qwest did not return calls seeking comment. Cisco declined to comment specifically on Redback's announcement.
-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com