Riverstone says it blew past rival Cisco Systems Inc. (Nasdaq: CSCO) to win a contract with KT Corp. (formerly Korea Telecom). This is Riverstone's second contract with KT; the first came last November and was estimated by analysts to be worth about $4 million to $6 million (see Riverstone Wins Big in Asia).
Terms of this deal weren't disclosed, but Riverstone says it includes an order for "more than 100" RS 38000 routers to be installed at aggregation points in KT's metro networks nationwide. The routers range in price from $70,000 to $500,000, depending on configuration.
Shares of Riverstone shot up $0.37 (10.48%) and were trading at $3.90 on the news by this afternoon.
Analysts say the deal is good news for Riverstone, validating its routers' mix of MPLS, Ethernet, and Sonet features (see MPLS VPNs: The Talk of Supercomm).
But this deal also points directly at Riverstone's growing dependence on the Asian market, and in particular on business in Korea. For the quarter ended March 26, analysts say Riverstone made roughly 10 percent of its $51.3 million in revenues in Korea.
Riverstone set this pattern last year, with a series of Korean wins:
Table 1: Riverstone in Korea
|Date||Korean Carrier||Deployment||Related stories in Light Reading|
|November 01||Dacom||RS 38000 and RS 3000 for nationwide metro IP||Riverstone Boasts MPLSuccess|
|June 01 and May 02||Korea Telecom||RS 8000, RS 8600, and RS 3000 for last-mile Ethernet; also, RS 38000 for metro core aggregation and VPNs||Riverstone Wins Big in Asia|
|January 02||PowerComm||1,000 routers (RS 38000, RS 1000, RS 3000) in Seoul area for Ethernet metro service||Riverstone Scores Big in Asia|
|May 02||Hanaro Telecom||N/A||N/A|
The Korean connection has its pros and cons, analysts say. "This extends Riverstone's Ethernet strength in large metro deployments," says Mark Sue of Frost Securities Inc. But he's concerned that Riverstone needs to push for growth in Europe and the U.S.
Earlier this year, Riverstone suffered setbacks due to drooping business in both these regions (see Riverstone Savaged on Warning). Sue says some of this damage may be offset in Europe by a reseller arrangement with Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which had tongues wagging worldwide earlier this year (see Deal Talk Boosts Riverstone, LR Index).
Still, there are some peculiarities of the Korean market that could work against Riverstone. Korean carriers are on a campaign to buy from Korean vendors, Sue says, which could threaten Riverstone's future position. What's more, he warns that price competition reigns supreme in the Korean market. For this reason, his firm recently trimmed gross margin estimates for all companies with dependence in Korea, including Cisco, Riverstone, and Redback Networks Inc. (Nasdaq: RBAK).
Riverstone isn't turning away from the siren song of Seoul. Indeed, it seems irresistibly drawn to the Asian market, where it earns more than 50 percent of its revenues. Another deal, with Korea's Hanaro Telecom, is expected to be announced within the next few weeks.
Riverstone will be showing its routers at Supercomm 2002, where company sources say it also plans a product announcement.
— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com For more information on Supercomm 2002, please visit: Supercomm Special