Redback Sneaks Out Gloomy Forecast

Firms that put out a press release about financial or legal affairs at the last minute before a public holiday might just as well broadcast an email to the world saying: "Here's some news we hope you don't see."

So it was that Redback Networks Inc. (Nasdaq: RBAK) issued a press release about its projected second-quarter revenues at 18:40 Eastern time (15:40 Pacific) on Thursday, (see Redback Sees Q2 Slide).

The vendor is projecting revenues of just $22 million for its latest three-month period (ended June 30), down from $29.5 million in the first quarter (see Redback Reports $24.9M Loss). According to figures from Thomson First Call, analysts had, on average, been expecting second-quarter revenues of $30.7 million.

Redback, of course, was not available for comment today.

Redback's share price fell by 3 cents on Thursday, to close at 91 cents. Of course, the market had closed before the press release hit the wires, so it could be a stock to watch when the market opens again Monday.

Redback's is capitalized at $166.4 million and has a 52-week high of $2.00, with a low of 24 cents. Its revenues for the whole of 2002 were $125.6 million (see Redback Trims Losses, CFO).

— Ray Le Maistre, International Editor, Boardwatch

walter_100 12/4/2012 | 11:47:21 PM
re: Redback Sneaks Out Gloomy Forecast verstand,
He took the next year to get upto speed! lol

You are right. I would want to know his side of the story/excuse. He has a great responsibility in the mess...Or maybe since RBAK was public he didn't care...
verstand 12/4/2012 | 11:47:24 PM
re: Redback Sneaks Out Gloomy Forecast .....he was going on a year long sabbatical.


This accounts for one year of VK's whereabout and doing for nothing the $5B merger, how about the second one year?
walter_100 12/4/2012 | 11:47:28 PM
re: Redback Sneaks Out Gloomy Forecast VK was on a sabbatical. He let the world that he was going on a year long sabbatical.
verstand 12/4/2012 | 11:47:33 PM
re: Redback Sneaks Out Gloomy Forecast The deal was probably a legacy of Vinod Khosla who had invested in both companies.

Over two years were wasted in sorting the merger out. Now Redback is just starting to offer SMS features on the SE hardware.

Q: Where was VK during these two years of contention and politicing? lightreceding, can you shed some light on it?
lightreceding 12/4/2012 | 11:47:34 PM
re: Redback Sneaks Out Gloomy Forecast Yes it is a good case study. But as usual what appears obvious is not always the reality of the situation.

Siara is not a separate study. The merger of Siara with Redback caused contention and politicing that lead to a slowdown in development. It was not a lack of roadmap that lead to the downfall, it was fighting over the roadmap by contentious factions.

Siara wanted to build a 'godbox'. Redback wanted to put SMS on the SmartEdge hardware. Redback needs the SMS on the powerful and resilient SmartEdge hardware to compete with Juniper and Cisco. Over two years were wasted in sorting the merger out. Now Redback is just starting to offer SMS features on the SE hardware. They are finally building the product that they need to build. An SMS and Router product that does MPLS. But so are other companies.

While this was happening many original Redbackers where vesting stock worth almost $200 a share after two splits and they were so flush with cash that they probably didn't care what was going on. Most of them left. Management turned over.

Typically high tech business plans are more about the product and the opportunity than running the business. They get the money and roll the dice and see how it works out. It is a whole lot different than a large company like IBM or HP deciding to build another product and having to justify the budget to layers of management.
verstand 12/4/2012 | 11:47:37 PM
re: Redback Sneaks Out Gloomy Forecast B-school case writers, Redback is a good case for you to follow. For certain discussion, this case is ready to wrap. Many VC fund a startup with a good nitch product or technology (has to turn into a sellable product quick). However, there is a lack of follow on products. Product roadmap is usually missing from business plan. After broadband session aggregation, what else can be done? What's the contingency plan when (not an "if")Cisco fights back? One order of magnitude of PVC count (per port) can sustain the lead for how long? It would be great if case writer can get hold of a copy of the original businesss plan submitted to VC. The $5B buyout of Siara can be a separate case to write (by a company valued at $0.17B two year later.) I hope some business school can pick the huge project to collect all those cases happened during this period.
Flower 12/4/2012 | 11:47:46 PM
re: Redback Sneaks Out Gloomy Forecast "All your base" is a catchphrase from a joke that happened over 3 years ago. It has grown old a long time ago. Anyone who still uses it after 2000, is a stupid dork. For some reason Gea still thinks it is funny. It just shows how much out of touch with reality Gea is.

Gea, quit your whining. Even if Bobby spouts out the biggest nonsense, he has a right to do so. Your boring replies only make it more tempting to just skip all your posts. If you don't like Bobby's post, check out the layout of the posts: there is a link you can click to "ignore author" (although it doesn't seem to work for me).

single mode figure 12/4/2012 | 11:47:47 PM
re: Redback Sneaks Out Gloomy Forecast Although I might find Bobby Max to be an omnipresent feature on LR and I might articulate funny pokes at him, they are no redundent fossils of speech, what in the hell does this mean, "all you base belong to us." This must be a riddle and only GEA holds the key. Am I to assume that syntax on your planet is not a requirement?
xos 12/4/2012 | 11:47:53 PM
re: Redback Sneaks Out Gloomy Forecast Redback To File Prepackaged Ch.11 If Debt Deal Isn't OK'd


NEW YORK -- Redback Networks Inc. (RBAK) said Monday it will likely file for Chapter 11 bankruptcy protection with a prepackaged reorganization plan if it is unable to garner adequate approval of a debt-for-equity deal from a group of its noteholders and its common shareholders.

The telecommunications-equipment maker needs holders of at least 98% of the debt and the majority of common shareholders that cast votes to approve a debt for equity exchange. Under the terms of the deal, Redback will exchange $467 million in noteholder debt for 95% of the common equity in the company. Existing shareholders will retain the remaining 5% of equity and have the option to increase their ownership by an additional 10% by purchasing warrants, said Kevin A. DeNuccio, Redback's chief executive, during a conference call with investors.

Redback hopes to win regulatory approval of the deal from the Securities and Exchange Commission this summer. The company hopes to obtain the noteholder and shareholder approval by the end of September, DeNuccio said.

About two-thirds of the noteholders already signed a lockup agreement authorizing the deal and Redback is confident it can obtain sufficient support from the remaining noteholders and common equity holders to authorize the deal and avoid a Chapter 11 filing.

"We feel very confident having gotten two-thirds (of the noteholders) to support this to date," DeNuccio said. "This deal is necessary for (Redback) to remain viable and grow."

Thomas Cronan, Redback's chief financial officer, said the company is prepared to seek Chapter 11 bankruptcy protection with a pre-packed reorganization plan if it fails to obtain adequate support.

"With two-thirds having agreed to the deal, we could go into a prepackaged reorganization and have the deal done that way in court," Cronan said. "We are hoping to do it out of court but we can get it done one way or another. We absolutely know we can get the deal done."

DeNuccio said the $467 million debt-for-equity exchange is the product of months of negotiations. Redback has been trying to pare debt and expenses to better compete in a sluggish spending environment in the telecom equipment sector, the CEO said.

"In discussions with customers, we've heard that our competitors always point out our balance sheet issues," DeNuccio said. "This deal gives us a clean slate on the balance sheet and puts us in a position for a fair fight in the market."

Cronan said Redback had roughly $69 million in cash at the end of the second quarter, $40 million of which is unrestricted.

-By Tom Becker, Dow Jones Newswires; 201-938-2020

single mode figure 12/4/2012 | 11:47:57 PM
re: Redback Sneaks Out Gloomy Forecast The historical analysis by Mister Max belongs in our national archive, strikingly like the founding fathers writing with a hint of Napa-Sonoma Cabernet, certainly a writing for and of our time blended with the ancient sandskrit...

Are you related to Peter Max..
rjmcmahon 12/4/2012 | 11:48:04 PM
re: Redback Sneaks Out Gloomy Forecast Good post from the perspective of one in the trenches.

Now, a perspective from the outside asks:

o How was the DSL infrastructure going to enable a competitive marketplace?
o What goods and services did the DSL really enable?
o How much money did the RBOCs put into folks like Redback and Covad?
o Wouldn't their primary interests of these guys be that of sabotage?
o Didn't the same thing happen with the cable cos and [email protected]?

Weren't these fraudband technologies nothing but a big lie to the public investor, if only in hindsight? And would not the experienced control investors understand these issues beforehand or were they really duped by a bunch of lobbyists and politicians?

Nobody should invest in our industry until we learn to value honesty and integrity, in my opinion. And the current wireless hype is nothing but more BS.
walter_100 12/4/2012 | 11:48:07 PM
re: Redback Sneaks Out Gloomy Forecast lightreceding,
Excellent post! Keep it coming!
atmguy 12/4/2012 | 11:48:08 PM
re: Redback Sneaks Out Gloomy Forecast
Very informative! Thanks.

lightreceding 12/4/2012 | 11:48:08 PM
re: Redback Sneaks Out Gloomy Forecast Redback came in to existence to exploit a shortcoming in Cisco routers that made them unsuitable for broadband session aggregation.

Redback was founded about the time DSL started taking off by a group of technolgy people who recognised the opportunity to take a niche market by exploiting a flaw in Cisco products. Session aggregation required the capability to terminate thousands of ATM PVCs. Cisco routers had an artficial limitiation in PVC count as a result of shortsighted coding of IOS and could only terminate a few hundred sessions per port.

The Redback Subscriber Management system was built with a number of innovative features for broadband session termination including the capability to terminate thousands of sessions per port.

After waking up from their slumber and realizing that a little startup was seriously cutting in the their market share for broadband access Cisco hacked together a product from the parts bin to compete with the largest product from Redback, the SMS 10000 and they added session management to a train of IOS for the smaller routers, the 7200 and later the 7400 to compete with the Redback SMS 500 and 1800.

Later various companies copied and built upon the Redback SMS concept, including Shasta, acquired by Nortel and the Unisphere, acquired by Juniper.

Redback has a unique place in the history of high tech as it was first to market with a broadband aggregator, created a new product category, stole marketshare from Cisco, was one of the top ten IPOs, and top ten growing companies of the boom and reached a market cap of over $20 billion while barely profitable. Redback made a lot of stock option millionaires.

Cisco should have seen the need for a broadband remote access server coming. Lucent could have been first with a device built upon the Portmaster 4 from Livingston, but internal confusion stopped this from happening and Lucent went about acquiring products and then killing them with political smothering. Ascend was too busy selling the company to Lucent and then bailing with the money to build a BRAS. They did leave Lucent with the Stinger IP DSLAM which had some success but even that is floundering as the buildings in Alameda sit mostly empty.

Redback did not pay for Siara. They issued stock for it. The price was a sign of the boom. The deal was probably a legacy of Vinod Khosla who had invested in both companies. Since Siara was late to market with their product, a god box called the SmartEdge, it was probably easier for him to merge Siara in to Redback and take some of the soaring Redback shares, than to do an IPO.

The CEO who took Redback public, Dennis Barsema, left shortly after the merger and Redback was left with Vivek Ragavan, a guy with no notable success to his name, who was beholded to Vinod. Randall Kruep the sales VP who led Redback against Cisco and others, left after being looked over looked for the CEO position in favor of Vivek, and Redbacks fortune started sinking.

For almost the last couple years Redback has been run by a group of cronies who were ousted from Cisco after Chambers woke up to the goings on in the Service Provider business unit and did a total reorganization including sending Sr. VP Kevin Kennedy on his way.

rjmcmahon 12/4/2012 | 11:48:09 PM
re: Redback Sneaks Out Gloomy Forecast The story of the birds and the barn was written by Jeffry D. Oldham. Forgot to give him the credit deserved.


It's nice to discover such human talents while sitting at one's computer.
gea 12/4/2012 | 11:48:09 PM
re: Redback Sneaks Out Gloomy Forecast BobbyMax:

All your base are belong to us.
rjmcmahon 12/4/2012 | 11:48:10 PM
re: Redback Sneaks Out Gloomy Forecast What the hell is Boobymax talking about?

Rereading his post may help us understand the message he was attempting to convey. Many may not agree with the perspective but trying to understand is the right thing to do.

At the time [your name here] was founded many companies were emerging [in] California like barns. This simply means it was difficult to differentiate these companies. The only difference between these barns was the placement of the exit door.

My interpretation is that during the mania most companies weren't unique nor diverse, and rather people were herding togther in the hopes of getting some of yesterday's harvests.

On the topic of barns, a more interesting anecdote begs the question, "If the farmer did become a bird why would he not behave just like the flock?"


There's the story of the farmer living through a cold, snowy Midwestern winter, looking out the window and seeing a flock of birds on his farm. They huddled together, shivering from the snowy cold. With his heart touched, he knows his heated barn has plenty of room for these birds. So he puts on his coat, opens the barn doors, and waits for the birds to enter the barn. He waits and waits, but they do not see the open barn doors. They continue to shiver outside. Next, he grabs some bird seed and makes a trail to the barn, but the birds fail to see the small seeds, lost among the snow. Next, he comes behind the birds and tries to shoo them into the barn, but they fly in the opposite direction to regather into their shivering mass.

The farmer thinks to himself, ``If only I could be a bird, I could show them the warm barn.''
Shazbot 12/4/2012 | 11:48:11 PM
re: Redback Sneaks Out Gloomy Forecast California>>>Barns?? What the hell is Boobymax talking about? I think he is smoking crack again.
BobbyMax 12/4/2012 | 11:48:12 PM
re: Redback Sneaks Out Gloomy Forecast Redback came into exibasically doing the same thing stence when thousands of router companies and various incarnations. These companies wanted to immitate the Cisco model of generating stock prices by acquiring companies that had no substantial technology. At the time Redback was founded many companies were emerging california like barns. This simply means it was difficult to differeentiate these companies. The only difference between these barns was the placement of the exit door.

Late 1990s was one of the worst times in our high tech industry that gave birth to dotcom companies and other spurious semiconductor companies exactly doing the same thing.

To make things worst for Redback, it acquired Siara Network for about $5 Billion. Siara Network did not have much of anything and Redback overpaid. Another unfornute things that Redback, without any thinking and deliverations appointed Mr. Raghvan as its President and CEO. Te company started withering away and never recovered for the huge amount it had to pay for Siara.

I think Redback would continue to exist in the samay Xerox, 3Com, and Novell have existed.
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