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Optical/IP Networks

Redback Falls on Verizon Hopes

Redback Networks Inc. is hoping for a better day after giving up 10 percent of its stock price yesterday.

Analyst Nikos Theodosopoulos of UBS AG issued a note Sept. 5 downgrading Redback to Neutral from Buy, citing contacts who said Redback wasn't likely to win a Verizon Communications Inc. (NYSE: VZ) edge-routing request for proposals (RFP).

Redback stock was down 14 percent most of the day but rallied late, ending the day down $1.90 (10.1%), at $16.79.

Redback stock went on a tear at the start of the year, climbing to $24.99 per share in June compared with $8.54 one year ago. The run-up was attributable to strong sales -- including a nice win at BellSouth Corp. (NYSE: BLS) -- and a tie-in with IPTV, as the long-suffering company finally reached profitability, albeit temporarily. (See How Redback Won BellSouth, Redback Hits the Numbers, Profits, and Redback Results Fail to Impress.) But Redback also benefited from the promise of the future, with investors banking on new business from Verizon and AT&T Inc. (NYSE: T). The latter is a customer of Redback's older SMS routers, and there's been speculation that AT&T could start using the newer SmartEdge line as well.

Concern arose earlier this summer that BellSouth, having completed a phase of SmartEdge deployment, might provide a less steady stream of revenues for Redback. Analysts seem to be appeased that that won't happen, but there still remains the question of how BellSouth's plans might change after its acquisition by AT&T. (See Redback Gets a Boost, Redback Shares Stumble, and Will AT&T Value BellSouth's Vendors?)

— Craig Matsumoto, Senior Editor, Light Reading

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