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Redback Rallies Itself

Execs at Redback Networks Inc. (Nasdaq: RBAK) say one major carrier is about to replace gear from Cisco Systems Inc. (Nasdaq: CSCO) with Redback's SmartEdge router. And more deals may be in the offing.

These remarks came during an April 15 companywide meeting, Light Reading has learned. During the two-hour presentation, Redback's top brass encouraged employees to enjoy their work, to “believe in themselves” and the company, despite the frustration of layoffs, constant expense cutting, and a depressed industry over the last year.

CEO Kevin A. DeNuccio told employees that he’s actually hidden some of the company’s successes so as not to tip off Cisco and other competitors.

"We have large-scale deployments going on at SBC, Verizon, and Qwest," DeNuccio said of the company's SMS product line.

DeNuccio also said that one "major carrier" is "using multiple boxes" in several locations to "try and make us a replacement for Cisco." He didn’t elaborate beyond that. He’s only comfortable, he said, announcing "generic progress" publicly.

"Our strategy of not sharing this with the market today is frustrating for some of you," he acknowledged. "Having come from Cisco and having run the sales force there, I do believe the best thing to do is operate as far as possible without them knowing where we're making progress. I do not want to tell Cisco where to go fight us first."

DeNuccio said Redback will only make the big customer announcement he hinted at when the network is in full deployment and when its boxes are handling carrier traffic.

Though DeNuccio seems afraid to tip off Cisco's routing business, elsewhere in the speech to employees he portrayed his former employer as a giant that's been crippled by the telecom downturn. "What's happened in the last three to six months, in my opinion, is that Cisco and Nortel, in the process of fixing themselves, have become much, much weaker competitors to us in the SMS space."

Later, when talking technology, DeNuccio elaborated a bit on the competition. "The reason Redback is able to beat Cisco over and over again, and the reason we have the network base that we have is because IOS [Cisco's software operating system] will not scale."

DeNuccio said Unisphere Networks Inc. has emerged by default as a stronger competitor to Redback on the SMS front. However, citing analysts, DeNuccio said he thinks Unisphere is getting ready to see a "dramatic falloff in [sequential] revenues." This will put the company on its heels and further away from an IPO, he predicts.

Redback's foremost goal now is to reach $60 million in quarterly revenues, execs on the presentation said. When it gets there, the company stands a better chance of impressing Wall Street by attaining a modest profit or by breaking even.

Redback's net revenues were $40.6 million for the three months ended March 31. To meet its year-end revenue projection, its execs told employees on the company call that the firm needs an additional $10 million in edge router revenues and $10 million in SMS revenues (see Redback Announces Q1 Results).

"We cannot cut expenses and fix this company; we have to sell more," DeNuccio said.

On Monday, Redback announced that Belgium’s largest independent service provider, KPN Belgium, is using its SMS boxes in its DSL network (see KPN Belgium Uses Redback).

Redback's executives said the company also needs to continue to chop its cash burn rate and -- adopting a slightly minatory tone -- to quell some internal grumbling. "I don't think we're where we need to be from a teamwork standpoint... There are still people here who don't believe in themselves, they don't believe in the company, and they need to move on," DeNuccio told employees.

During his remarks to employees, CFO Dennis Wolf said Redback's momentum is muted in the market by the din of bad news coming from other systems companies. After pointing out a spate of earnings concerns, revenue shortfalls, and layoffs from several companies, Wolf quipped: "And we met or exceeded earnings revenues and cash guidance, reduced our inventories and liabilities, and our stock dropped 40 percent. What's wrong with this picture?"

Redback says the comments are on the mark. "Redback is getting 100 percent of all domestic incremental business for SMS," says Shailesh Shukla, VP of marketing and business development. "In edge routing, just about any win is going to be against Cisco."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
2bits 12/4/2012 | 10:32:25 PM
re: Redback Rallies Itself Hats off to the staff of Redback for broadcasting their competitive strategy to the world via Light Reading.
Employee feedback at companies I've worked with invariably shows a high desire for more frequent and better communication from management. Evidently, at Redback, this is so that employees have something to tell reporters after an all-hands call.
Why would anyone interested in keeping their job and some day cashing their stock options, reveal that their CEO's strategy is to keep major wins under the radar of Cisco? And then proceed to name them.
With a team like DeNuccio has, who needs enemies?
scooby 12/4/2012 | 10:32:25 PM
re: Redback Rallies Itself Confidential material from an internal meeting is squealed immediately, layoffs are a way of life, and the boss is complaining about people not being team players and asking them to "move on".

That sounds like a real swell place to work.

"We cannot cut expenses and fix this company; we have to sell more," DeNuccio said.

How about starting with some of the Porsches in the driveway?
Light-bulb 12/4/2012 | 10:32:18 PM
re: Redback Rallies Itself Jeez do I hear a taint of jealousy? DeNuccio is actually a pleasant guy. The fact that he left Cisco to Run Redback indicated he disagreed with some of the corporate decisions, that didn't mean he was not well compensated. (As he should be)
The bottom line is this: Cisco is a tough competitor, and I would rather not divulge any information that threatens to compete with 15454 sales. The customers announced were in the way of DSL not in the SE 800 router.
Selling is the key to all the troubles, if vendors actually understood customers' networks and could fit their "Widgets" into the customers networks life would be better. But more vendors are simply shopping around to hear the answer they want (or designed to provide) and expecting other customers to want the same. That is not selling.
I wish Redback the best, any potential win for them is good news in my opinion.
maryhadalambda 12/4/2012 | 10:30:58 PM
re: Redback Rallies Itself If RBAK is trying to stay under CSCO's radar, then the employee who leaked this meeting shows the quality of the people who work at RBAK.

If this is some kind of planted item, well...anyway RBAK guided essentially flat for the rest of the year. VZ, SBC, and whomever may be big customers but they ain't going to save RBAK
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