Optical/IP Networks

Redback Gets a Break

After two traumatic days, Redback Networks Inc. shares are calming down.

Redback shares were up $0.04 (0.2%) to $14.13 in early afternoon trading on Thursday.

The edge router maker's shares had fallen 10 percent on Sept. 5 and took another 16 percent drop yesterday. Should it close near $14.13, Redback stock will have lost about 24 percent of its value from Friday's $18.69 closing price.

The downward trading was apparently triggered by a report that Redback had not won an edge-routing contract from Verizon Communications Inc. (NYSE: VZ), one of the potential deals that made Redback's future look extra sunny and got investors revved up. (See Redback Falls on Verizon Hopes.)

"With a lot of these names, there tends to be a lot of early speculation," says Joe Chiasson, an analyst with Susquehanna Financial Group .

Analysts continued to chime in on the company's status during the last two days. It's taken a while, possibly because most of the Wall Street types covering Redback were occupied with a Cisco event yesterday.

Meanwhile, Redback tried to counter the gloom with releases today about success in Asia, including a win with Thailand's True Corp. plc (formerly Telecom Asia) and a general statement about life being good with China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906) and China Telecom Corp. Ltd. (NYSE: CHA). (See Redback Touts Deals.)

For the Verizon bid, incumbent Juniper Networks Inc. (NYSE: JNPR) would seem the favorite, but analysts are split on whether Juniper has already won the deal. In a report issued this morning, Mark Sue of RBC Capital Markets wrote that "it's not over" but added that a late effort from Cisco Systems Inc. (Nasdaq: CSCO) might hurt Redback's chances.

"Cisco is oftentimes successful in delaying the decision process of carrier customers, and this instance is no exception," he wrote.

Sue hadn't included a Verizon win in his Redback appraisal anyway. Moreover, "winning at Verizon may mean losing at the bank," he wrote, noting that he's heard of "significant price concessions" related to the deal.

Separately, there's been talk of Redback increasing business with AT&T Inc. (NYSE: T), one of its top customers. But analyst Joanna Makris of Canaccord Adams Inc. thinks that talk is "premature" and that rumors valuing a new AT&T contract at $30 million might be a tad "aggressive."

What about that Asia stuff? Asia, representing 21 percent of revenues by Sue's estimates, "may be the primary growth region this quarter," he wrote.

But there's a downside to that, as increased business in Asia could mean lower margins. "Overall, we continue to expect more moderate growth in [the September and December quarters] relative to the momentum of the past two quarters," Makris writes.

— Craig Matsumoto, Senior Editor, Light Reading

Sign In