Redback's stock, at one time trading at nearly $200 in the past year, has fallen more than 75 percent. The company's market capitalization stands at less than $5 billion, making it a more attractive target as an acquisition, according to analysts. Possible suitors may include Nortel Networks, Cisco Systems, Juniper Networks, Alcatel and Nokia, analysts said.
"Where there's smoke, there's usually fire," said Paul Johnson, analyst with Robertson Stephens, of the ongoing rumors surrounding Redback.
SG Cowen analyst Michael Jung said it's conceivable Redback could be for sale, given that its market valuation has fallen, but it's unlikely the company wants to give up its independence. "They're still building their businesses and forecasting a healthy 2001," he said. "They are one of the few companies that raised their guidance after the fourth-quarter results."
Redback representatives declined to comment on the rumors.
Redback is part of a network equipment initial public offering Class of 1999 that included other former high-fliers such as Juniper, Extreme Networks, Foundry Networks, Copper Mountain Networks and Sycamore Networks, among others. All have been hit by ongoing economic concerns and a slowdown in capital equipment spending by network operators that have altered the once-bullish landscape for the networking industry.
As a result, a company such as Redback is a palatable acquisition target for a larger firm. The company makes a set of networking equipment that allows a service provider to manage broadband Internet access subscribers, such as DSL (digital subscriber line) users. Redback has also added metropolitan optical equipment to its roster, hoping to expand its focus. Both technologies could be good fits for the likes of Alcatel, Nokia or Nortel Networks, in particular.
Acquisitions in the networking industry are usually commonplace, but they have slowed in recent months as companies have been more concerned with shoring up their internal businesses. But German giant Siemens recently plucked another former high-flier, Efficient Networks, for $1.5 billion, a move that could signal another wave of consolidation for the sector.
Jung said Redback may be an acquisition target by other companies because of its new next-generation optical equipment. Jung said the new optical market is a high-growth area and will be the least affected from a predicted slowdown in sales of telecommunications equipment.
"They're possibly selling themselves to survive," said Frank Dzubeck, president of analyst firm Communications Network Architects. "They could also survive by holding out and morphing themselves into something else."
One interesting suitor is rumored to be Juniper, another member of the IPO Class of 1999 that remains highly valued despite a significant stock downturn. But analysts remain skeptical that the company would want to endure a large acquisition and expand beyond its expertise in core Internet routing technology.
A Juniper spokesman declined to comment on the rumors.
News.com's Corey Grice contributed to this report.