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Redback Rallies on Q4

Light Reading
News Analysis
Light Reading
1/27/2005

Investors in broadband equipment vendor Redback Networks Inc. (Nasdaq: RBAK) came out buying this morning after the company posted stronger fourth-quarter numbers fueled by an uptick in its next-generation edge routing products (see Redback Q4 Losses Shrink).

The San Jose, Calif.-based company reported revenues of $32.1 million for the quarter ended December 31, up 13 percent from $28.4 million in the year ago quarter and up 56 percent from the $21 million in the third quarter of 2004. Thomson First Call analysts had expected revenues of only $28 million.

Meanwhile, the company reduced losses during the quarter, posting a net loss of $12 million or 23 cents per diluted share -- roughly half of the $24.9 million (14 cents a share) it lost during the year-ago quarter.

Redback's stock moved up $0.30 (5%) to $6.42 in early morning trading.

The company’s SmartEdge edge routing and broadband aggregation products accounted for two thirds of the company’s sales in the fourth quarter, the company says.

The SmartEdge products are also the company’s fastest growing sellers. Product sales (excluding services) were $44.9 million during 2004, an increase of 228 percent over the $13.7 million in SmartEdge sales during 2003.

The company did not give hard guidance numbers, but said it expects first-quarter 2005 revenues to be greater than those of the previous quarter. Analysts are expecting a more modest $29.1 million.

Redback CFO Tom Cronan said on Tuesday night's earnings call that the company needs to do $36 million in revenue in order to hit breakeven; and he and DeNuccio expect Redback to deliver those numbers at mid-year 2005.

The company has a string of nine major carrier wins since the beginning of 2004, only five of which have been announced. Redback CEO Kevin DeNuccio told Light Reading that his company now has equipment in eight of the 20 largest carriers in the world.

DeNuccio believes that carriers, led by those in Asia, will face increasing pressure to expend capex on intelligent edge products specifically designed for the delivery of next-generation services.

“Most incumbents have a significant time issue to get video networks built, and get video revenues starting to come online to offset the continued erosion in voice revenues,” DeNuccio told analysts during an earnings call Wednesday.

Redback customers Korea Telecom and China’s Chunghwa Telecom Co. Ltd. are now maintaining networks that deliver next-generation services such as gaming and video, DeNuccio says.

What’s more, DeNuccio asserts that Redback’s main competitors are still selling “last-generation” technology, and that Redback’s is the only gear out there designed specifically for delivering next-generation services.

Net revenue for whole year of 2004 was $115.6 million compared with $107.5 million in 2003. DeNuccio calls 2003 a “year of survival,” 2004 a “year of stabilization,” and predicts 2005 will be “a year of growth, and a return to industry leadership.”

— Mark Sullivan, Reporter, Light Reading

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