Cresting Riverstone Networks
By Evan Blackwell
from the April 16, 2001 issue of Broadband Week
Riverstone Networks certainly doesn't lack for confidence in its metro bandwidth provisioning equipment. The company proved that by going full-steam ahead with its initial public stock offering earlier this year, despite the crumbling market in technology shares. Riverstone not only remains afloat three months later, it also last month posted fiscal year and fourth-quarter financial results that exceeded expectations and made a splash on Wall Street.
"We're pretty gutsy people," says Steve Garrison, Riverstone's director of marketing. "That's the spirit in the data communications business."
If it was competitive spirit that allowed Riverstone not to waver from its plans, then the move has definitely paid off. Parent Cabletron Systems Inc. on Feb. 16 raised gross proceeds of about $120 million from an IPO of a minority stake in Riverstone, and plans to spin its remaining 86 percent interest off to Cabletron shareholders.
In late March the company released its first financial results since going public, and the good news continued. Thanks to surging sales, Riverstone reported $35.1 million of revenue for its fiscal fourth quarter, an increase of 175 percent from the same period a year earlier. Net loss for the quarter came in at $5.5 million and was well under expectations.
The numbers have buoyed the confidence company-wide, most notably in CEO Romulus Pereira, who boldly told a listening audience on the company's earnings call that Riverstone continues to target profitability for its November quarter.
That very could become a reality if Riverstone deepens a customer list that added Cox Communications, Japan Telecom and UPC among others in its fourth quarter. Riverstone's focused efforts in Asia also have produced immediate dividends. On March 27, Riverstone signed an agreement with Chinese telecom giant ZTE to resell Riverstone routers throughout China's metro area networks. British Telecom, WorldCom and national Internet service provider EarthLink already are using Riverstone gear.
So what has created all the rosy news for Riverstone, while others in the telecom market struggle to stay afloat? Riverstone calls its products "service creation infrastructure" for metro service providers. The routers and switches that Riverstone sells allow its customers not only to provision bandwidth, but also to make it intelligent.
Riverstone's RS family of routers uses the Granite open source toolkits to form a platform that allows service providers to dynamically perform rate limiting on a per port basis and classify traffic for differentiated services. The provisioning capabilities mean that carriers can enable quality of service whether a service provider has a legacy OSS or is implementing a next generation network.
While such competitors as Extreme Networks target metro players that use Ethernet, Riverstone says it's looking at a broader market. While Ethernet is the smart play for young companies emerging into the metro space, there are larger carriers itching to move into the metro space that are burdened with legacy infrastructure. Riverstone's products have become a popular choice with that group.
Matthew Robison, an investment analyst with Ferris, Baker Watts Inc., says Riverstone has hit a sweet spot in the market, because of its ability to provide products both to established and next-generation carriers in the emerging metro market.
The analyst recently boosted his rating on the shares to "strong buy" from his previous "buy," and he's not alone. Riverstone also has garnered ratings of "outperform" or "buy from Wall Street luminaries J.P. Morgan; S.G. Cowan; Lehman Brothers; Morgan Stanley and Salomon Smith Barney, even though in the tech market's ongoing selloff Riverstone fell at one point last month to just over half of its $12 per share IPO price.
"They're adding value to the infrastructure that's already in place," Robison says. "They have a competitive edge in their interfaces that allow IP services to be deployed over legacy equipment."
That doesn't mean Riverstone hasn't had to address the challenges other startups have faced. But with plenty of good buzz and business backing it, Riverstone has positioned itself as an equipment provider on the rise.
"One of the real challenges we've faced is that the business guys feel real comfortable with a Cisco brand," Garrison says. "But they now realize when it comes to laying features, they want to come to us."
|
