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