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Redback Hits the WallRedback Hits the Wall

Redback announces it will report a quarterly loss, miss estimates, and cut 150 jobs

April 3, 2001

3 Min Read
Redback Hits the Wall

Shares of Redback Networks Inc. (Nasdaq: RBAK) were hammered today after the company foreshadowed a disastrous quarter in which it will fall well short of revenue estimates and announce a substantial loss.

In late afternoon trading, Redback shares were down 1.85 (15.81%) to 9.85, an all-time low since the company held its IPO in the summer of 1999.

Redback blamed that omnipresent bogeyman -- the weakening global telecom market -- yesterday when it announced that it will post a first-quarter loss and lay off 150 workers, or about 12 percent of its workforce (see Redback Backs Off on Guidance).

The announcement comes a little more than a month after merger discussions between Redback and other companies, most notably Juniper Networks Inc. (Nasdaq: JNPR), reached fever pitch (see Redback and Juniper Talked, Balked).

The company said it expects revenues for its fiscal quarter ending March 31, 2001, to be between $85 and $90 million. That expectation represents a 21 percent to 26 percent decline from its previous quarter, in which revenues were $114.6 million. The company's guidance at that time was for 20 percent sequential growth.

Redback was expected to turn a $0.05 per share profit for the quarter, according to analysts’ estimates. Now it expects to post a $0.15 loss. The company says it will give guidance for the remainder of the year during its April 11 earnings call.

Slowing economy aside, Redback's lousy quarter has some specific causes, according to a conference call held yesterday between its managers and Wall Street analysts:

  • Requests from two "major" customers, whom Redback did not name, led to a writeoff of some $24 million worth of unsold DS3 modules for its SmartEdge platform. Company officials claim the customers wanted some new TDM and IP routing-related features, which will be available in its next generation of DS3 modules. The new modules will begin shipping in the second quarter, according to Redback CEO Vivek Ragavan. By delivering the new stuff and scrapping the old, Redback is deferring some potential revenues from the DS3 modules until next quarter.

    • During the last two weeks, other unnamed customers of Redback's subscriber management system (SMS) product have slowed DSL deployments and told Redback they won't be snapping up its gear as quickly as once planned. Sales of the SMS products will be down "substantially" quarter to quarter, Ragavan said, but Redback "hasn't lost a customer."

      Redback's two largest customers for last year were Qwest Communications International Corp. (NYSE: Q) and Genuity Inc. (Nasdaq: GENU), which accounted for 15 percent and 10 percent, respectively, of Redback's total revenue. The company confirmed that it has already begun shipping to Qwest in fulfillment of its most recent SmartEdge contract with the carrier (see Redback Edges Into Qwest).

      Redback's charges against earnings for its second quarter will include a $23 million charge for office space and other facilities that Redback won't be using and hopes to sublet. The company will also take a $4 million charge to cover employee termination costs.

      The company's headcount, including contractors, is about 1,200. The layoffs, which will occur across all areas within the company, will knock that number down to around 1,050. This marks just one of many temporary and permanent personnel-related changes Redback has seen in the past calendar year (see Redback Hires New CFO, Kruep Leaves Redback for Procket, and Redback's Blair off to the Races).

      - Phil Harvey, Senior Editor, Light Reading http://www.lightreading.com

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