Riverstone Upstaged by Downgrades
The news has cut Extreme's stock by 5.01 (22.32%) to 17.44 and Enterasys by 3.77 (28.89 %) to 9.28. Riverstone also was caught in the crossfire. In early morning trading, the company’s stock was down 1.81 (14.70%) to 10.50 before climbing up to 11.45 at end of the day.
In any other market environment on any other day, Riverstone’s deal to supply Hong Kong-based Hutchison Global Crossing (HGC) with gear to provide MPLS in its metropolitan area network, could have sent the company’s stock soaring. But today the Morgan Stanley report has left virtually no Layer 3 switching player unscathed.
“Riverstone is one of the only companies in this sector that has consistently put good news out there,” says Andrew Feldman, vice president of marketing for Riverstone. “Other companies have missed numbers recently, had massive layoffs, or mediocre gains. But that’s the environment we’re working in.”
This isn’t the first time Riverstone has been upstaged. The company’s public debut back in February came only a day after Nortel Networks Corp. (NYSE/Toronto: NT) slashed its guidance for the first quarter of 2001, an event that sent the entire technology sector into a tailspin.
”It seems like every week bad news comes out of some company,” says one industry observer, who didn’t want his name used. “Riverstone isn’t immune to it. When Chris Stix [of Morgan Stanley] drops his heavy axe on a couple of companies, everyone feels it.”
While Riverstone hasn’t disclosed the size of the China contract, a spokesperson says it is larger than any deal it's sealed so far. This means that it could be in excess of $4.5 million, the approximate amount of Riverstone’s contract win with Korea Telecom announced in June (see Riverstone Wins Big in Asia). In other words, Hutchison Global Crossing could generate more than ten percent of the company’s revenue for the August quarter.
“This contract is just one in a series that we are expecting from Riverstone,” says Alex Henderson, an analyst with Salomon Smith Barney. “The company is getting a lot of good traction with PTTs and ILECs. From what I can tell they pretty much have the August quarter in the bag.”
Not only is this a big financial win, it’s also the first announced end-to-end metro deployment of MPLS. This is significant because Riverstone’s main competitors -- Cisco Systems Inc. (Nasdaq: CSCO), Foundry Networks Inc. (Nasdaq: FDRY), and Extreme -- have all announced MPLS on their metro routers and switches, but none of them has announced customers using it.
Cisco announced MPLS-over-Ethernet interoperability testing on its 7600 Optical Service Router at the Networld + Interop tradeshow in Las Vegas last May. But the service provider listed in the press release endorsing the product and promising to deploy it in its network was 360networks Inc. (Toronto: TSX), which recently declared bankruptcy (Oops! see 360networks Calls It Quits). Extreme says it started shipping its MPLS product last month but has refused to name any customers. Foundry says it won’t comment on customers using MPLS on its NetIron routers, but it did announce it was demonstrating the feature back in June at the Supercomm tradeshow in Atlanta.
Hutchison Global Crossing, a joint venture between Hutchison Whampoa Ltd. and Asia Global Crossing, has agreed to buy several hundred Riverstone routers, including the RS 38000 core aggregation router, the RS 8600 multiservice metro routers for point of presence aggregation, and the RS 3000 for aggregating traffic at the building access, says Stephen Garrison, director of corporate marketing for Riverstone. The gear will be deployed in a network that connects the island of Hong Kong and the city of Kowloon, which sits across the water on the mainland. The carrier plans to use MPLS to provide a video-on-demand service to nearly one million Hong Kong residents.
Big deal? Yes and no. Most of the recent talk about MPLS has centered around IP core applications. Carriers like AT&T Corp. (NYSE: T) and Global Crossing Ltd. (NYSE: GX) are using a flavor of MPLS based on the Internet Engineering Task Force (IETF) RFC 2547, which allows for Layer 3 IP traffic to be mapped to BGP (border gateway protocol) routes creating virtual paths through core IP backbones. This implementation labels packets and sets up virtual paths for them to travel, signaling each router on the path to help avoid congestion.
MPLS in the metro is based on work from a different working group, and that implementation is known as the Martini Draft. It allows for traffic to be mapped to Layer 2 Ethernet VLANs (virtual local area networks) to set up virtual paths and guarantee quality of service on specific traffic types.
“This is significant because it is the first real deployment of MPLS in the metro that I’m aware of,” says David Gross, senior optical networking analyst with Communications Industry Researchers Inc. “But before you get too excited, this is just a fiber-to-the-home application. For other places in Asia like Korea this is a big deal, but in the U.S. there isn’t the same kind of population density to make a significant revenue stream. Maybe someplace like Manhattan, but that’s it.”
Riverstone's Garrison acknowledges that the killer application for metro MPLS in the U.S. market will not come from residential Ethernet applications. But he says that the same network design could be used to deliver transparent LAN services to business customers.
“Business in Asia is good for us right now,” he says. “But we know that the DSL and cable modem players are already going after the residential customers here and there isn’t enough fiber deployed to the home in the U.S. right now. We’re more focused on business applications.”
- Marguerite Reardon, Senior Editor, Light Reading