Redback Regroups With Narrower Loss

Redback Networks Inc. (Nasdaq: RBAK) is still losing millions a quarter, but its relationship with Nokia Corp. (NYSE: NOK) may be starting to pay off.

The telecom equipment maker reported Wednesday evening that net revenues for its second quarter, ended June 30, were $40.1 million -- considerably lower than the $59.4 million it reported for the year-ago quarter, but only slightly off its first-quarter revenues of $40.6 million. The company beat analysts' per-share earnings expectations as it continued to cut expenses (see Redback Posts Q2 Results).

Redback's second-quarter pro forma net loss, which excludes a number of miscellaneous charges, was 16 cents a share, compared to a loss of 26 cents during the year-ago period. Analysts surveyed by First Call expected the company to lose 17 cents a share during the quarter.

"We feel we've turned an important corner on the path to profitability," said Redback CEO Kevin Denuccio, during the company's Wednesday conference call.

Nokia made up at least 10 percent of Redback's revenues during the quarter. The company says it shipped a mixture of SmartEdge 800 edge routers and Subscriber Management System (SMS) access boxes to Nokia, which recently bought a 10 percent stake in Redback and took a seat on its board (see Nokia Invests $36M in Redback).

Denuccio didn't disclose whether its business partner was going to sell the gear it bought. "We don't have the specific [information on] customers that account for sales coming out of Nokia." Redback says it booked revenues as soon as the products it shipped were received by Nokia, because Nokia was not stocking inventory.

In mid June, Light Reading reported that Redback had only reached about $21 million in revenues booked for the quarter. Along with its shipments to Nokia, a good chunk of Redback's sales evidently came late in the quarter (see Will Redback Close the Gap?).

Redback declined to give the difference in margins between the gear it sells directly and the gear it sells through Nokia, making it difficult for analysts to tell exactly how profitable Redback's sales to Nokia really are.

Nokia is on the hook to buy a certain amount of Redback products each quarter, per its strategic alliance with Redback, but Redback won't disclose how much.

Analysts didn't seem concerned with Nokia's emergence as a prominent Redback customer, even given that it's not yet known to whom Nokia is selling. "We think Nokia purchased equipment above its quarterly minimum because it required demonstration systems for prospective customers," writes David Jackson of Morgan Stanley Dean Witter & Co. in a note to clients issued Thursday morning.

In addition to Nokia, Verizon Communications Inc. (NYSE: VZ) and eAccess Ltd. were Redback's other customers that each made up at least 10 percent of its quarterly sales. Redback says that British Telecom (BT) (NYSE: BTY) was nearly a 10 percent customer, marking the first time BT has been a significant revenue contributor.

Revenues for the SmartEdge 800 were $6 million during the quarter, about $1 million of which is being used for standalone optical transport applications, the company says. The company now boasts having 10 revenue-producing customers for its edge router.

Also on Wednesday, Redback announced that Taiwan’s Chunghwa Telecom Co. Ltd. has become a customer of its SmartEdge platform, as previously reported on Light Reading (see Chunghwa Picks Redback).

Including all one-time charges, Redback's actual net loss for the second quarter was 40 cents a share, or $65 million, way down from the $3.26 a share, or $460 million, it lost in last year's second quarter.

The company took writedowns totaling $28.8 million for inventory and fixed assets and cut 85 jobs during the quarter as it moved out of the optical transport business.

It had no comment on whether it was in the process of forming any strategic relationships with other equipment vendors (see Redback, Alcatel Close to Alliance).

Redback CFO Dennis Wolf says the company expects third-quarter revenues to be "slightly up."

Overall, however, concerns that telecom spending won't recover by the year's end make Redback managers appear overly optimistic. Redback shares were down $0.19 (11%) to $1.51 in early afternoon trading on Thursday.

— Phil Harvey, Senior Editor, Light Reading
foton 12/4/2012 | 10:06:55 PM
re: Redback Regroups With Narrower Loss There is no mention in the report on the success or fate of the SmartEdge 800 TDM platform. What's the news on this?
bluemtn 12/4/2012 | 10:06:41 PM
re: Redback Regroups With Narrower Loss My take from their conference call was that they are basically getting rid of the optical transport product, but because some customers are using the IP router in the same way they might continue to see maybe 1 mill/Q from that market.

The write down on inventory was all tied to cutting back / or getting rid of the optical transport business.

DonGÇÖt know about you, but they basically said that they were going to do this back in April. They should have suggested then thy had some that much inventory in this business segment.

BobbyMax 12/4/2012 | 10:05:40 PM
re: Redback Regroups With Narrower Loss It is a terrible mistake to rely on the predictions by Wall Street Analysts. It is equally painful to trust enthusistic statements made by CEOs to the analysts.

It is hard for me to believe that any company would be able to enhance or even maintain its current sales level in view of decling telecom market everywhere in the world.

It is good that the company stopped developing optical networking products.

The trobles of Redback began after it acquired Siara Networks for nearly $4.5 Billion. It was fraud at the highest level.

It is not clear if RedBack has appropriately downsized its workforce.
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