Redback Sees Rebound

Redback Networks Inc. (Nasdaq: RBAK) said Wednesday its third-quarter revenues dropped 53 percent from a year ago, thanks largely to delayed equipment sales to carriers and weak carrier capital spending (see Redback Q3 Revenues Plummet). Though disappointing, the results met Wall Street's recently lowered expectations (see Redback Limps Into Genuity and Redback Warns).

The company reported revenues of $17.4 million for the quarter ended September 30, compared to year-ago revenues of $37 million. The company's pro forma loss was $34.8 million, or 20 cents a share. Redback's actual (GAAP) quarterly loss was $52.9 million, or 30 cents a share.

Its revenue decline was both sharp and unexpected (until a couple of weeks ago), but Redback maintains that the third quarter was an anomaly. "We do not believe these numbers reflect a new trend in business activity for Redback," says Kevin DeNuccio, Redback's CEO.

Redback's chief financial officer, Dennis Wolf, told investors and analysts that next quarter the company's revenues would "reach above $30 million."

The company says it will cut quarterly expenses by $6 million to $9 million, but declined to specify where the cuts would be. During the quarter, Redback's operating costs were $37.6 million, of which about 80 percent are fixed costs and 20 percent variable, according to Wolf.

In a research note sent Thursday morning, Morgan Stanley Dean Witter & Co. analyst David Jackson writes that Redback ought to "lower its breakeven quarterly revenue run-rate below [its] $40 million target due to the difficult operating environment."

DeNuccio tempered his optimism by cautioning analysts not to assume that it would get back all of its deferred business from the third quarter. "I think that in Q3 we definitely had delayed revenues, but I don't think you recapture the whole bit."

Redback's cash and investments were $138.3 million at the quarter's end. DeNuccio says Redback's board is still aiming to get the company to cash-flow break-even by the first half of 2003.

"We have enough cash to sustain us through the industry downturn," DeNuccio says.

DeNuccio reiterated that some Redback sales were lost in the third quarter because customers were anticipating a new release of Redback's subscriber management system (SMS).

The new technology that carriers are waiting for are new cards that plug into the SMS 10000 chassis, DeNuccio says. The new cards let carriers manage the same number of broadband subscribers while allowing each individual subscriber a higher amount of bandwidth, DeNuccio says.

British Telecommunications plc (BT) (NYSE: BTY; London: BTA) and Shanghai Telecom each made up more than 10 percent of Redback's revenues.

Nokia Corp. (NYSE: NOK) made up about 16 percent of Redback's quarterly revenues. Redback's sales through Nokia were all to carriers outside North America and, so far, Nokia has only put them into wireline networks, DeNuccio says.

Since Nokia invested $36 million in Redback earlier this year, the wireless equipment maker has become Redback's largest customer (see Nokia Invests $36M in Redback). Redback, however, hasn't said which carriers it has penetrated with Nokia's help, nor will it reveal how much it makes on each Nokia sale of its gear.

The company's SmartEdge router continued to show growth during the quarter, bringing in $6 million in revenues from four new accounts. DeNuccio says Redback's objective is to be the "primary edge router alternative to Cisco Systems Inc." (Nasdaq: CSCO).

Redback shares were up $0.01 (3.85%) to $0.27 in trading on Wednesday. The company's stock hasn't been above a $1 since August 30.

— Phil Harvey, Senior Editor, Light Reading
B8ZS 12/4/2012 | 9:34:47 PM
re: Redback Sees Rebound Your a fool if your still betting on this company. No one even cares enough to even post comments! Please no more stories about deadback until the story is about them shuting their doors.
bluemtn 12/4/2012 | 9:34:36 PM
re: Redback Sees Rebound If there cash holds up they will be fine. No one responds because the dialog is nothing but flame.

the balance sheet sucks, the router OS rocks, the devel is in the details and no one knows what will happen.

BobbyMax 12/4/2012 | 9:34:34 PM
re: Redback Sees Rebound RedBack, Foundry, and RverStone do not seem to have a very strong position in the market place. But these companies, at least some of them, would continue to survive the same way Xerox does. Xerox, for example, does not think it should close down as long as it can pay the salaries. It does not care about shareholders and profitability.
Iipoed 12/4/2012 | 9:34:18 PM
re: Redback Sees Rebound Curious why Foundry was lumped in with Riverstoned and Redback. Foundry has been profitable 15 straight quarters, plenty of dough in the bank, real products that push technology and plenty of customers including hundreds of thousands of ports with the Feds.

Plus their employee turnover is the lowest in the industry.
toonces_has_the_car 12/4/2012 | 9:34:17 PM
re: Redback Sees Rebound Agree with lipoed.

Actually these 3 have little in common. Foundry is probably in the best position because they are an enterprise product, with good leverage in certain niches. (Enterprise has been hit too, but it is a big market). Redback and Riverstone have been fighting over dwindling piles of table scraps.

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