Optical/IP Networks

Redback's Woes Mount

While the rest of the world whispered about takeover potential and poison pills, Redback Networks Inc. (Nasdaq: RBAK) had more serious issues at hand: selling some products.

The networking company warned Wall Street this afternoon that its second quarter fiscal 2001 earnings would be around 30 percent less than it had been expecting (see Redback Backs Off on Guidance).

The company says it now expects a pro forma quarterly loss of between 27 and 32 cents a share on revenues of between $55 million to $60 million. The actual loss, of course, will be much greater, as this preliminary pro forma forecast doesn’t include things such as acquisition-related charges, stock compensation charges, restructuring charges, and an expected inventory charge.

Wall Street analysts had been expecting a loss of 11 cents a share on revenues of $88 million. Redback’s managers insist that the company isn’t losing customers. Rather, they say its customers -- which include Genuity Inc. (Nasdaq: GENU), Williams Communications Group (NYSE: WCG), SBC Communications Inc. (NYSE: SBC), and BellSouth Corp. (NYSE: BLS) -- just keep pushing back orders as they slow down construction on their networks.

“This revenue shortfall is not attributable to competitive wins against us," says Dennis P. Wolf, Redback’s chief financial officer. “In fact, we won several new accounts this quarter.” He then teased a multimillion-dollar contract that would mark the company’s “largest SmartEdge sale to date in Asia,” but failed to give any details.

The company gave no guidance going forward for the rest of the year. It says it will do so on July 11, when it has its formal earnings conference call for the second quarter of 2001. The company had previously estimated it would bring in between $400 million and $420 million in revenues for fiscal year 2001 (see Redback Bleeds Red).

Redback shares have been on an upswing lately, as rumors of it exploring a merger with Juniper Networks Inc. (Nasdaq: JNPR) have been running rampant. The two firms walked away from negotiations in March (see Redback and Juniper Talked, Balked).

In fact, acquisition rumors appear to have become a regular fact of life for Redback. Unfortunately for the company, the stock keeps falling after rumors subside and the company announces that fundamentals are deteriorating. On May 30, Redback’s stock went on a similar jag as takeover rumors began to circulate; this time the potential acquirer was thought to be Alcatel SA (NYSE: ALA; Paris: CGEP:PA).

Earlier this month, Redback passed a shareholder resolution known as a “poison pill,” which makes a potential takeover target less attractive to firms looking to buy it.

Speaking of things less attractive, investors voiced their disapproval of Redback’s most recent earnings warning. After closing at 11.31 in trading today, Redback shares dropped 19% to 9.07 in after-hours trading on the Island ECN.

- Phil Harvey, Senior Editor, Light Reading

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