Profit warning, downgrades cripple Redback shares

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Redback Networks led network-equipment stocks lower Tuesday, falling $1.45, or 12 percent, to a 52-week low of $10.25 after analysts downgraded the stock following the company's first-quarter profit warning.

Late Monday, Redback (Nasdaq: RBAK) told analysts to expect a first-quarter loss of 15 cents a share on sales of between $85 million and $90 million.

First Call consensus pegged Redback for a profit of 4 cents a share on sales of $131 million in the quarter.

"This was a very difficult and disappointing quarter, as we saw many customers push out deployments and defer purchases of equipment," said Chief Executive Officer Vivek Ragavan, during a conference call with analysts.

Redback said it would take a restructuring charge of about $23 million due to extra office spaces and research and development office spaces. The company hopes to rent out excess office space to tenants.

It also took about $24 million in charges for excess inventory, mostly from unsold DS-3 modules used with its SmartEdge networking hardware. It sees another $4 million restructuring charge in the second quarter.

"We expect that it will take at least several quarters for the company to recover its composure," said Steve Kamman, an analyst at CIBC World Markets, in a research note. "For the year, we estimate the company could come in anywhere between break-even to a loss of 10 cents a share."

Kamman reiterated his "hold" recommendation.

Analysts were projecting a profit of 43 cents a share in the fiscal year on sales of $686.1 million.

Dain Rauscher Wessels analyst Sanjiv Wadhwani cut the stock from a "strong buy" rating to "buy aggressive," while ABN AMRO analyst Kenneth Leon chopped it from a "buy" recommendation to "add."

Martin Pyykkonen, an analyst at C.E. Unterberg, Towbin, maintained his "buy" rating on the stock but reduced its 12-month price target to $25 from $85 a share. He also cut his fiscal 2001 estimates to a loss of 14 cents a share on sales of $427 million, down from a profit of 50 cents a share on sales of $745 million.

"We believe in the company's competitive position and that they are focused on the still relatively better networking equipment segments for future growth," he wrote in a research note. "We believe these results are more a function of the overall slowdown in capital spending by service providers, rather than Redback losing significant competitive position."

Last quarter, Redback topped analysts' estimates when it earned $7.8 million, or 5 cents a share, on sales of $114.6 million.

Among other widely held network-equipment shares, Extreme Networks (Nasdaq: EXTR) slid $1.43 to $13.17, Cisco Systems (Nasdaq: CSCO) lost $1.06 to $14, Lucent Technologies (NYSE: LU) shaved off $1.11 to $7.72, Nortel Networks (NYSE: NT) clipped 89 cents to $13.09, Ciena (Nasdaq: CIEN) lopped off $6.50 to $35.94 and JDS Uniphase (Nasdaq: JDSU) fell $1.44 to $15.25.

Redback shares peaked at $181 in July.

Fifteen of the 19 analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.

Redback will release its first-quarter results on April 11.