Redback Limps Into Genuity

Redback Networks Inc. (Nasdaq: RBAK) today announced that Genuity Inc. (Nasdaq: GENU) has become a customer of its SmartEdge 800 Router (see Genuity Picks Redback Router). The deployment size and financial details of the purchase were not revealed.

What is known, however, is that both companies are hurting. Genuity may soon face bankruptcy, and Wall Street is pressuring Redback to keep cutting expenses, which could lead to more layoffs this week.

What's also known is that a nod by Genuity, a large Internet-services focused carrier spun off of Verizon Communications Inc. (NYSE: VZ) following the merger of Bell Atlantic and GTE, is a thing to be coveted by an IP routing vendor. "Genuity's endorsement is worth its weight in gold," crows Shailesh Shukla, Redback's VP of strategy and business development.

Redback's announcement certainly accomplishes one thing: It gives Redback another chance to show momentum for its edge router, the product Redback is betting will help it grow when carrier capital spending stabilizes. Shukla says the edge router is in 60 carrier trials and it now has 11 revenue-producing customers.

In the Genuity deployment, the first boxes will be deployed in Europe. Later, when there's capital spending available and enough traffic growth, Genuity will deploy Redback in North America, Shukla says.

Genuity and Redback have worked together for years. In fact, Genuity was one of the first carriers to buy Redback's SmartEdge 800 optical transport device and, in 2000, Genuity accounted for about 10 percent of Redback's total revenues. However, it's not clear how supportive Genuity can afford to be in the coming months.

"It's impossible for us to comment on how Genuity will spend its money and what they will spend it on," says Shukla.

The carrier recently extended talks with its lenders by making a $25 million payment on the $2 billion it owes a consortium of banks. Unless it finds the needed funds or reaches an agreement with its creditors, Genuity may have to file for bankruptcy protection (see Genuity Gets Bank Extension ).

Though it continues to announce customer wins, Redback is hurting, too. This quarter, Redback announced that Shanghai Telecom and Chunghwa Telecom Co. Ltd. are now buying its edge router (see Redback's Router Gets Shanghaied). Earlier this month, Redback said the German carrier wilhelm.tel GmbH has installed its SMS 10000 boxes to deliver Internet access and telephone services to about 28,000 households and businesses in and around Hamburg (see Redback SMS Wins in Germany).

Despite the momentum, Redback announced it would miss its revenue projections and will lose more money than expected (see Redback Warns). Redback said its third-quarter revenues were going to be in the $15 million to $20 million range, down at least 50 percent from its second-quarter results.

Management said the shortfall came partly because carriers were so looking forward to an upcoming version of the SMS product that they stopped buying the old product.

Redback had 719 employees as of July 10, and industry rumors had it cutting a substantial amount of its sales force. The company will lean on its business partner, Nokia Corp. (NYSE: NOK), to pick up the sales slack in North America, according to industry talk.

Though the layoff rumors are unconfirmed, analysts say it's no secret that Redback needs to cut its operations expenses to make up for missing its quarterly revenues goal by such a wide margin.

"Redback’s balance sheet is extremely weak and it is critical that the company find a way to restructure its outstanding debt in order to ensure its viability," writes U.S. Bancorp Piper Jaffray analyst Ed Jackson, in a recent research note. "The company ended the [second] quarter with $156 million in cash and equivalents, and is currently burning through approximately $20 million in cash per quarter."

The company's third-quarter earnings conference call will take place on October 9. Wall Street expects Redback to report a loss of 23 cents a share on $16.49 million in revenues, according to analysts surveyed by Multex.com Inc..

Genuity did not return calls seeking comment.

— Phil Harvey, Senior Editor, Light Reading
Ringed? 12/4/2012 | 9:36:21 PM
re: Redback Limps Into Genuity On the surface this sounds ridiculous. Genuity who has one foot in the grave and one on a banana peel itself is buying from RBAK.

Buying an unproven and surely underdeveloped product. "Damn the torpedoes! Full steam ahead!"

This article goes on to say that Genuity was one of the first SME 800 optical transport customers.

That's very ironic or perfect timing as word on the street is that RBAK canned all development, sales and support of the SME 800 transport line today.

Anyone care to confirm or deny?

maryhadalambda 12/4/2012 | 9:36:06 PM
re: Redback Limps Into Genuity "it is impossible for us to comment on what Genuity will be spending its money on."

That is, if it has any money left. Two losers gasping their last. See-ya Siara
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