Redback pins hopes on upgrade
The company introduces an upgrade to its SMS 10000 networking equipment, but analysts say it will need more than that to turn its outlook around.
Redback's SMS 10000 SL is designed to allow ISPs (Internet service providers) the ability to offer additional services and more bandwidth per subscriber without a major overhaul to their existing SMS 10000 equipment.
But some analysts say the upgrade, which involves greater processing power and software enhancements, is not expected to solve Redback's tight cash crunch.
"It's good to see that they are continuing to innovate on a product line that accounts for 70 percent of their revenues, but the total revenues they are bringing in from that (subscriber management systems) market is not enough to stabilize their cash flow," said Steve Kamman, a networking analyst with CIBC World Markets.
Nonetheless, executives at Redback Networks are optimistic that SMS 10000 SL will generate a healthy revenue stream for the company. Redback, which plans to begin shipping the product within the next two months, anticipates the upgrade will help maintain its lead in the SMS market, said Shailesh Shukla, vice president of marketing and business development.
The upgrade is expected to sell for 20 percent to 30 percent above the cost of the SMS 10000, which sells for $150,000 to $400,000. Shukla said some of the major customers among its 350 clients have indicated interest in buying the upgrade.
One of the changes in the SMS 10000 SL is a dual MIPS processor from Broadcom that runs at 700MHz and offers the ability to use one or both processors as needed, compared with the old system of using a PowerPC chip that runs at 350MHz to 400MHz.
"Before, if you needed to prevent certain Web sites or material from being shown on your network, you would have to look at each packet. That requires a lot of processing power to do this," Shukla said. "Now with the upgrade, you have the processing headroom to do the deep packet processing...and you can still use your old (SMS 10000) chassis to do this."
The new hardware also includes more memory, with 512MB RAM (random access memory) verses 256MB, he added.
In addition, a significant software change means that the SMS 10000 SL will allow service providers to give their designated customers a guaranteed level of bandwidth, whereas in the past no guarantees could be offered, Shukla said.
Although the company has great hopes for the upgraded product, Shukla acknowledges the market for subscriber management systems is only a $300 million to $400 million annual market, compared with the $2 billion router market that it has also entered.
Analysts say the company should hang its hopes on its product line of SmartEdge routers to help it weather its financial storm, rather than its SMS systems.