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Redback challenges giants with new technology

The upstart networking equipment firm can't rest long on its laurels as larger competitors such as Cisco want to get in on its action.

In the highly competitive networking equipment market, industry leaders don?t have much time to rest on their laurels.

For Redback Networks, a company that makes high-speed equipment for the Internet, this rule rings especially true. The upstart firm three years ago solidified its position in the market with networking technology that plugs businesses and homes into high-speed Internet connections.

The technology?s success has been a blessing as well as a burden. As demand for broadband connections for corporate and home networks increases, other networking leaders are looking to jump in. Giants such as Cisco Systems, Nortel Networks and Alcatel, as well as smaller companies such as Spring Tide Networks, are working to grab a piece of Redback?s action.

And there is a lot of action to be had, according to industry analysts. The market will grow from $400 million in sales this year to $5 billion by 2003, analyst firm Current Analysis predicts.

Despite the entry of leaders like Cisco into Redback?s small broadband niche, analysts feel the upstart will maintain its position. The firm yesterday released new technology that it says will allow it to jump ahead of other competitors.

"They are continuing to dominate, and they have so many customers right now, it will be even more difficult for the other players to unseat them," said analyst Conrad Leifur of U.S. Bancorp Piper Jaffray.

Redback SMS 10000 Redback, whose shares have soared since its initial public offering, says its Subscriber Management System 10000 can handle even more high-speed customers, whether they subscribe to digital subscriber line (DSL) technology or cable-modem technology.

Previously, Redback's technology could only handle 8,000 subscribers on a network. The new device can support 100,000 subscribers, according to Mark Wiener, Redback's director of marketing.

Redback?s competitors, however, offer similar technology. Nortel, Spring Tide and Cosine Communications have also come out with devices that support up to 100,000 subscribers.

The technology "allows Redback to at least match the claims of Nortel, Cosine and Spring Tide," Current Analysis analyst Ron Westfall said. "It solidifies the customer base they have and gives them a clear migration path from first-generation boxes to their bigger, badder boxes."

Some of Redback's customers include local phone providers Bell Atlantic and SBC Communications and Internet service provider PSINet.

Challenges still exist. While Redback was working on improving its technology, competitors Nortel and Cisco have moved in on Redback's market share.

In the fourth quarter of 1999, Redback claimed 41 percent of the market for the specific broadband technology. Nortel came in second with 36 percent, while Cisco was third with 20 percent, according to market research firm Infonetics Research.

Redback's technology offers support for DSL, cable, wireless and dial-up access. The new device will also bolster T1 and other "leased line" connections--expensive, high-speed Net access connections typically used by corporations--and will allow service providers to offer secure high-speed connections to corporate networks (virtual private networks) over the Internet.

The company also has plans to branch out to other types of networks. Tapping its recent acquisition of optical firm Siara Systems, Redback executives expect to ship new equipment later this year, helping service providers ultimately build a faster Internet.

Leifur, who rates Redback shares a "strong buy," expects the company to continue to thrive in the coming years.

Redback, whose shares split today, posted its first profit in January by earning $2 million, or 4 cents a share on revenue of $26.1 million.

Leifur expects the company's sales for the next quarter to grow 300 percent, compared to a year ago. He also predicts Redback will earn $165 million in revenue this fiscal year, reaching $420 million in 2001.