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Optical/IP

Riverstone Begins New Chapter

Riverstone Networks Inc. is mounting its comeback story, which will unfold over the next few weeks as it goes on the road in an effort to regain credibility and perhaps a Nasdaq listing.

After cleaning house and replacing most of its senior management, the company has been cooking up a plan to reposition itself as a provider of Layer 2 switching gear for metropolitan carrier networks, focusing on technologies such as Multiprotocol Label Switching (MPLS), Virtual Private LAN Service (VPLS), and Ethernet, say company officials (see Riverstone Unveils New Boxes, Ethernet Troop Hot on VOIP, Carrier Offers Convergence Twist, and MPLS Migration Gets a Voice).

That’s a slight shift from the old Riverstone, which was more broadly marketing Ethernet switching and routing gear and even dabbled in enterprise sales. Riverstone is now trying to carve a more focused niche for itself between the dominant enterprise Ethernet switching players such as Foundry Networks Inc. (Nasdaq: FDRY) and Cisco Systems Inc. (Nasdaq: CSCO) and the high-end WAN routing market occupied by Cisco and Juniper Networks Inc. (Nasdaq: JNPR).

Apparently, Riverstone sees itself as a competitor to multiservice switching and routing products like those from Vivace Networks (acquired by Tellabs Inc. [Nasdaq: TLAB; Frankfurt: BTLA]) or Timetra Networks (acquired by Alcatel SA [NYSE: ALA; Paris: CGEP:PA]). This makes a lot of sense, since the market for multiservice switches and routers has been heating up -- and everybody else is now running to the space (see Has Juniper Gotta Sinatra? , Laurel Hires New CEO, Hammerhead Nails $25M, and Packets Key to Capex Comeback).

Experts see this as the correct way to go, but they note that the company has significant challenges, primarily on the management and sales side.

"They should focus on the metro, definitely," says Michael Howard, principal with Infonetics Research Inc. "They're small, so you can only focus on one thing, and metro Ethernet is growing faster. It will be interesting to see how the engineering and sales teams can stay together."

Riverstone already had many of the technical aspects of the carrier Ethernet swtiching market in place. It's been actively involved in standards organizations, and one of its senior engineers, Marc Lasserre, is the co-author of the Lasserre-V.Kompella draft standard for VPLS (see Virtual Private LAN Service and VPLS: The Future of VPNs?).

The largest hurdle for Riverstone is repairing the damage its reputation has suffered. Last year, Riverstone went through a full-blown corporate crisis revolving around accounting misstatements that resulted in some attention from the Securities and Exchange Commission (SEC) and, eventually, a delisting from the Nasdaq and the departure of most of its top executives (see SEC Calls on Riverstone, Riverstone Readies Restatement, Nasdaq Delists Riverstone, and Riverstone in Debt Dustup).

The company hopes to apply for relisting with Nasdaq in the near future, say company officials. Unlike some house-cleanings, this one has been thorough. In the past six months, the company’s gotten a new CEO, replaced half its board of directors, and replaced most of the senior management (see Riverstone's Got a New Chief and Riverstone Founders Resign). More than half the employees are new (see Riverstone Appoints General Counsel and Company Makeover).

”We were wandering round for a while, we had an identity crisis, and now we’re going after a growing market,” says Dave Ginsburg, VP of marketing. "But it was clear that something was wrong and radical changes needed to be made."

Ginsberg says that it feels like most of the staff is new, and that the company culture has changed -- "there are more cars in the parking lot late at night," he says.

So, will the market buy the story? Riverstone has been so beaten up that even modest success could only help. The carrier Ethernet market has the potential to be very big (see Infonetics: SPR Market Grows). Riverstone's still got plenty of cash -- about $280 million including investments -- and, although the details of its finances are still a bit fuzzy, it looks as if it could break even with only a modest uptick in sales. The company says it’s currently running at about $10 million.

Some folks are making big bets on the turnaround. One investor, S-Squared Technologies of New York, recently filed a form with the SEC saying it owned 10,304,050 shares, or 7.8 percent, of Riverstone’s outstanding common stock.

Relative to its peers, Riverstone is trading at a cheap valuation in the pink sheets. With 130 million shares outstanding, the stock recently traded hands for about $1.40 per share. That gives it a market capitalization of about $182 million, which is less than the value of its cash and investments on hand. At the end of quarter on November 29, 2003, Riverstone reported cash, short-term, and long-term marketable investments of $268.2 million. Because Riverstone has been delisted and is under review by the SEC, its filings include only preliminary, unaudited results.

During that quarter, Riverstone’s preliminary statement indicated it had between $9 million and $10 million in revenue. It was still operating at a loss, and it burned through about $17 million in the quarter, according to a company press release.

— R. Scott Raynovich, US Editor, Light Reading

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mr101 12/5/2012 | 2:29:50 AM
re: Riverstone Begins New Chapter This article is full of errors. For starters Riverstone will need a revenue of $35 to 40 million to be profitable. The company's revenue last quarter was $9 million. The revenue has to quadruple to break-even - not just go up by little bit as this article suggest.

In addition Riverstone has a debt of $131.8 million. Which means that the total cash value of riverstone is $137 million which is a lot
less than the market cap of $182 million. Hence Riverstone is not trading below cash value as this article suggest. In addition there are about 5 pending law suits which would easily cost the company $37 million. Therefore the company's cash value is really just $100 million. The investors are paying a ridiculous premium for a company with no profitability in sight. No Tier 1 customer will buy from a company in such precarious financial position.

In addition Riverstone is loosing talented engineers almost very week.

Seems to me that Riverstone just bought a lot of advertisement on light reading to get such blatantly flawed write-up. The least the author should have done is reviewed the following

http://biz.yahoo.com/bw/040204...

Shame on You.
Hanover_Fist 12/5/2012 | 2:29:48 AM
re: Riverstone Begins New Chapter Riverstone has NO new customers and many of those who purchased the products in the past subsequently returned the gear (adding to their accounting 'oversights).

I predict that the new executive staff there will end up reannouncing the same tired customers (TimeWarner, a Korean Service Provider, and possibly one other) but the real measure of their success will be if they can announce a brand new customer and one not 'funded' by a Riverstone backroom deal.

Riverstone's new chapter should be titled, 'Conclusion.'
newbee2002 12/5/2012 | 2:29:48 AM
re: Riverstone Begins New Chapter > mr101 wrote:
> This article is full of errors...

Right on, it's a terrible... terrible... article. I was thinking of taking a new position in the stock, but back out after listened to the CC and read the earnings release. The future is so muddy for the company that even if they get Nasdaq relisting, there is no guarrantee that they can avoid bankruptcy soon after.
pisk100 12/5/2012 | 2:29:47 AM
re: Riverstone Begins New Chapter I work for a excellent equipment vendor and lately we interview about a engineer a week from Riverstone and it seems that the common thread seems to be complete disillusionement with the engineering management that they have in place. May be they should take a second look at the present engineering management if they want to stop the exodus.
dmfr14000 12/5/2012 | 2:29:47 AM
re: Riverstone Begins New Chapter I am not surprised. Before Pereira left he appointed many of his clueless and inexperienced Indian buddies to top Engineering Management positions.
djkstra 12/5/2012 | 2:29:46 AM
re: Riverstone Begins New Chapter LR wrote:
Experts see this as the correct way to go, but they note that the company has significant challenges, primarily on the management and sales side.

I agree market for Multiservice is heating up. But what is the market scope for multiservice ?? Laurel is struggling to survive. So are others with comepetitots like cisco and juniper!!!Riverstone would be atleast two years late in this market assuming it will have truly multiservice products by that time..

Does not make sense for one to believe that multiservice can be lifesaver for Riverstone..
ATMRules 12/5/2012 | 2:29:45 AM
re: Riverstone Begins New Chapter Riverstone and Hammerhead are way to late, Ciena/WaveSmith already are in production networks of SBC, a couple of small telco's and it looks like Verizon is not that far away, Juniper sticks to layer 3, Cisco got a Stratacom box that's outdated, I don't see Riverstone as having any success in this area. All the big boys will eventually replace the end of lifed Cascade B-STDX 9000 and CBX 500's..not too many GX-550's out there, ...WaveSmith had the right idea 3 years ago...and no I'm not a WaveSmith/Ciena employee...I just see the tree's beyond the forest...

ATMRules....
sinkingrstone 12/5/2012 | 2:29:44 AM
re: Riverstone Begins New Chapter Generalissimo Oscar has been El Presidente for 5.5 months, and besides spinning all this propaganda what has he done to right the ship? He apparently spent his first 4 months waging a coup d'etat against Rom & Piyush, losing valuable employees and squandering time that would have been better spent focussing on customers. After almost two quarters under Generalissimo Oscar, no one has acknowledged if the XGR is cancelled or not (Pipal might not have been such a smart purchase), revenues are still lower than the cash burn, the new revenue recognition policy can't hide the lack of deferred revenue or sales growth, and breakeven requires 250% quarterly sales increases. A couple more quarters of this trend in a growing market leaves the Stone with less than $100M in net cash (before lawsuits) while they get further behind their competitors in sales and customer wins. Think theyGÇÖll be trading at a 40% premium to net cash then? Some new chapter indeed.
andropat 12/5/2012 | 2:29:43 AM
re: Riverstone Begins New Chapter How does Junipers rumor of this new sinatra box affect things? Obviously they are focusing the unisphere platform simply on B-RAS. And you mentioned Laurel. What's up with them? They seemed to have a ton of momentum with Luca Martini endorsing the system and having it tried and tested in L3s network.

They just dropped off the map. Any clues? I think Riverstone is a good acquisition target at this point. They seem to have a fairly decent software offering and a very low-cost L2 platform targetted directly at the metro space. Wondering why they wouldn't shop it out at this point.

Pat
truelight 12/5/2012 | 2:29:41 AM
re: Riverstone Begins New Chapter Pelease,

Riverstone is floating fown the river. Bunch of prior management screw up and mistakes have now been replaced by a another bunch of money boys.
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