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Redback posts tough second-quarter results

The company reports second-quarter revenue that meets lowered company projections and a loss that tops forecasts, as it grapples with a spending slowdown.

    Redback Networks reported second-quarter revenue Wednesday that met lowered company projections and a loss that topped forecasts as the company continues to grapple with a spending slowdown from its phone carrier customers.

    Excluding charges and other one-time items, the maker of high-speed Internet gear and fiber-optic equipment for metropolitan networks posted a loss of $37 million, or 26 cents per share, on net revenue of $59.4 million.

    That compares with a net loss of $5.7 million, or 5 cents per share, on revenue of $48.7 million for the same quarter a year ago, and a loss of 13 cents and revenue of $90.9 million in the preceding quarter.

    Wall Street expected Redback to post a loss of 29 cents a share, according to the consensus estimate of analysts surveyed by First Call. Redback previously had forecast second-quarter revenue between $55 million and $60 million.

    "The marketplace continues to be extremely challenging as the economic and industry downturn continues," Redback CFO Dennis Wolf said in a conference call.

    Redback issued an earnings warning two weeks ago that significantly lowered its forecast for the quarter as the company continues to see trying times ahead as its telecom carrier customers are expected to buy less equipment.

    "We're still seeing a profoundly depressed telecom market," said analyst Steve Kamman, of CIBC World Markets.

    The company also warned investors that first-quarter earnings would be less than expected, joining many other companies, such as Juniper Networks, Nortel Networks and Tellabs, that have issued alerts over the past few months, indicating that the telecom sector has become hard to navigate.

    The San Jose, Calif.-based company recorded an inventory charge of $74.9 million and another $3.9 million charge related to the severance packages it paid to recently laid off employees.

    The company recorded 992 employees at the end of the quarter, down 17 percent, or 204, from the previous quarter.

    Including these charges and other charges related to stock compensation and acquisitions, the company reported a loss of $460 million, or $3.26 a share.

    Redback said during the call that it is making progress in its search for a new CEO and that it hopes to make an offer in the next few weeks. Former CEO Vivek Ragavan left in May, which caused company watchers to wonder about Redback's top management, especially since Ragavan's resignation followed the departure of the company's CFO last January.

    The company also said trials with carrier customers for its IP (Internet Protocol) equipment continue to stay on track. The gear will enhance its SmartEdge product line, equipment that transmits data within metropolitan networks, which operate within urban areas.

    The IP box will enable carriers to transmit different kinds of traffic faster and more efficiently. Redback expects to begin shipping it at the end of the third quarter, so revenue from the product will show up in fourth-quarter earnings.

    Looking ahead, Redback believes that the slump in the market will persist for a few quarters.

    "It appears that this downturn will continue unabated," Redback acting CEO Pierre Lamond said during the conference call. "We expect (it) to continue through the end of this year."

    Redback estimated that third-quarter revenue will stay flat with revenue in the second quarter, and that third-quarter earnings will come in flat to slightly higher compared with the second-quarter results, excluding charges and special items.

    Company executives said they were comfortable with Wall Street consensus estimates for third-quarter revenue of about $56 million and with fiscal-year revenue estimates that range from $260 million to $300 million.