Optical/IP Networks

Riverstone Wins Big in Asia

Riverstone Networks (Nasdaq: RSTN) saw its stock price jump 1.16 (6.9%) to 19.40 early this morning before it settled to about 18.40 at midday.

The reason? The company announced a multimillion-dollar contract with Korea Telecom, South Korea’s largest telecom provider, marking a significant development on several fronts.

First, this is the biggest contract the company has won to date, according to Andrew Feldman, vice president of marketing for Riverstone. There is even talk that Korea Telecom could generate more than 10 percent of the company’s revenues this quarter, edging out long-time customer IntelliSpace, which was named as a 10 percent customer on the company’s last earnings conference call (see Metro Hopes Float on Riverstone).

Although the company refuses to reveal the exact amount of the deal, based on Riverstone's $44.2 million in revenue from this past quarter, the Korea Telecom contract could be worth close to $4.5 million.

“This is no pie-in-the-sky, 'I promise to spend $400 million with you’ promissory note,” says Feldman. “This is a huge purchase order.”

The company has announced several big-name customers, including Time Warner Inc. (NYSE: TWX) and Qwest Communications International Corp. (NYSE: Q) in the U.S. and British Telecom (BT) (NYSE: BTY) and Telia AB abroad.

But Korea Telecom is the first incumbent carrier customer for Riverstone. It is also the largest carrier in South Korea and is one of nine top incumbent carriers in the world, says Feldman. What’s more, Korea is in the midst of rolling out a massive broadband network. Already it has tapped about 30 percent of the total Korean market in less than a year. This is in comparison to a 4 to 5 percent broadband penetration rate for all carriers here in the U.S. market, he adds.

This deal is also important because it is one of the first deployments of Ethernet in the metropolitan area of an incumbent carrier’s network.

“Korea Telecom is a tier-one customer in Asia-Pacific. They aren’t going to go out of business,” says Kevin Mitchell, directing analyst of service provider networks for Infonetics Research Inc. “They’re also on the cutting edge of using Ethernet in the metro, and that is fairly significant for all the Ethernet players.”

So, what does this mean for Unisphere Networks Inc. (Nasdaq: UNSP), which also says Korea Telecom is one of its largest customers? Unisphere announced just last week that it has extended its contract for the third time, shipping even more of its ERX-14000 platforms.

The reality is that these two product lines are used in different parts of the network, says Mitchell. Unisphere’s routers are used to aggregate traffic and to offer subscriber management for broadband services. Riverstone’s gear will be used to provide Ethernet access to customers in the last mile. The deal calls for the deployment of hundreds of Riverstone’s RS 3000 and RS 8000 products. None of the large chassis products like the RS 32000 or the newest addition, the RS 16000, are part of this deal, says Riverstone’s Feldman.

As expected, the company vied for the business with Cisco Systems Inc. (Nasdaq: CSCO); Extreme Networks Inc. (Nasdaq: EXTR) was also an early contender. But Feldman says that the company won the deal because it not only offered a deployment option that would fit into Korea Telcom’s Sonet-based infrastructure, but it also offered a variety of features like BGP4 routing protocol, multiprotocol label switching (MPLS), usage-based billing, wire-speed performance, per-port rate limiting, and a compact form factor.

Analysts agree that Riverstone’s deployment in Korea Telecom -- which uses gigabit Ethernet ports to connect out to customers and T3 (45 Mbit/s) and OC3 (155 Mbit/s) lines to connect upstream to existing Sonet rings -- could be the model for Ethernet in metro networks going forward.

“They won this deal because they could blend legacy interfaces with newfangled Ethernet in the metro,” says Mitchell. “There’s a lot of legacy Sonet out there, and carriers aren’t going to give that up anytime soon.”

- Marguerite Reardon, Senior Editor, Light Reading

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