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NGN Candidates – Redback Networks (RBAK),

1)What does Redback Networks do?

Redback Networks Inc., designs, develops, and markets advanced communications systems that increase the profitability and manageability of Digital Subscriber Line (DSL), cable, and wireless broadband access, while enabling optimized delivery of value-added applications and services from the service provider edge to the local loop. Redback paves the way for carriers, Multiple Service Operators (MSOs), and Network Service Providers (NSPs) to rapidly and cost effectively deploy high-speed data applications and services by simplifying networks, simplifying operations, and scaling performance to meet the needs of mass-market delivery.

I like this overview from
Redback makes a product that serves as a traffic cop between heavily trafficked subscriber lines and the Internet's backbone, helping to prevent logjams in the system. Because they subscriber management system (SMS) is geared towards cable, DSL and wireless providers, Redback is possibly the best broadband play. It doesn't matter which technology wins, Redback should benefit and that's one reason to be bullish on this stock.
Its Subscriber Management Systems (SMS) connect and manage large numbers of subscribers so companies can deploy high-speed broadband access to the Internet and corporate intranets. SMS 1000 supports up to 4,000 subscribers, while the SMS 500 system supports up to 1,000. The company expanded its business with the 2000 purchase of privately held Siara Systems, a maker of optical networking gear, for more than $4 billion. Redback's subscriber management systems make it easier to manage how much bandwidth each user gets. For example, some one who wants to stream video over the net will need more bandwidth, and with Redback an ISP could give you more bandwidth but also charge you more.
The SMS market will be worth $2 billion by 2002 and Redback is mostly likely will retain most of the market.

2)What are Redback's products?

Redback products maximize business benefits for carriers and providers by simplifying broadband provisioning, operations, and service delivery. In addition, Redback solutions allow service providers to satisfy the application and service needs of their customers dynamically, on a per-subscriber, per-session basis. In essence, Redback solutions enable carriers and service providers to instantaneously meet the needs of their business and consumer broadband customers.
Redback's flagship family of Subscriber Management Systems™ (SMS) has established a new category of solutions that enables service providers and carriers to provision, aggregate, and manage broadband, leased-line, and dial-up subscribers and services via a single, unified platform. Redback's SmartEdge™ family of multi-service optical networking platforms leverage technological advances in silicon and optics to deliver both traditional time-division multiplexing (TDM) and IP-based services with carrier-grade reliability, security, and scalability. SmartEdge products are optimized for metropolitan access networks.
Redback's SmartEdge™ 800 represents a major step forward in the evolution of metropolitan optical transport. The SmartEdge 800 is a powerful multi-service optical networking platform designed to help carriers and service providers improve the economics of their growing SONET/SDH and video transport networks while providing a built-in migration path to high margin IP-based services.

The tools below, including the SmartEdge 800 Tourcast, presentation, and product literature, provide a comprehensive introduction to the advantages of Redback's new optical platform.
Redback's Subscriber Management System™ (SMS) 10000 raises the bar of functionality, performance, and scalability for broadband subscriber management. Featuring massive capacity and throughput, true carrier-class reliability and Redback's production-proven software, the SMS 10000 enables new levels of service aggregation, wholesale access, and IP service creation.
Redback's Subscriber Management System™ (SMS) 1800 is a powerful, highly intelligent networking device that aggregates thousands of broadband subscribers and enables the creation and delivery of value added IP services.
Redback's Subscriber Management System™ (SMS) 500 is a powerful, highly intelligent networking device that bridges the operational gap between high-speed access equipment in the telco central office or cable/wireless head-end and service provider backbone routers.

Some press releases on SmartEdge system:

3)What are the future prospects of broadband, Redback, and its growth?

Increasing demand for broadband is being fueled by a number of new applications, including e-commerce, streaming video and audio, dramatic growth in communications traffic and Internet usage. Narrowband systems cannot handle this traffic, hence strong demand for cable, DSL, fiber and wireless, the broadband technologies.
Service providers have used routers as the infrastructure to enable broadband service offerings. This is an inefficient way to handle broadband traffic. Routers can only handle several hundred subscribers and has limitations with regard to the number of technologies that service providers can offer.
Redback's subscriber management system addresses the limitations of routers and customers are clamoring for the product.
Redback's product enables cable operators and service providers to connect and manage thousands of subscribers using different broadband technologies. Service providers can use Redback gear to offer DSL, then scale to offer cable. As a consequence, lower network operating costs are experienced with Redback equipment.
Analysts are predicting torrid growth for Redback. In fiscal 1999, Redback posted revenue of $64.3 million. For fiscal 2000, estimates call for revenue of $150 million, growing to $300 million in 2001. Redback achieved profitability in its last quarter, and is expected to show earnings of $0.33 in 2000 and $0.80 in 2001.

Another analyst's opinion (FWIW!):
“Leifur expects the company's sales for the next quarter to grow 300 percent, compared to a year ago. He also predicts Redback will earn $165 million in revenue this fiscal year, reaching $420 million in 2001.”

4) What competitive advantage, strategic partnerships and patents does Redback have?

Redback solutions enable carriers and service providers to build the New Access Network-a unified, highly efficient infrastructure for provisioning and managing subscriber services across network layers. The Redback New Access Network deployment model greatly simplifies network operations and service delivery while enhancing network reliability and performance. Redback offers carriers, MSOs, and service providers these advantages:
· Rapid time-to-market and ROI through seamless integration with the existing operations model
· Highly scalable deployment and configuration of services
· Low cost of operations with the ability to dynamically manage accounts, bandwidth, and destinations
· Efficient, secure, and cost-effective support of the wholesale transport model
· High return on investment through innovative service creation capabilities
· Multi-vendor and multi-technology interoperability (DSL, cable, wireless, Frame Relay, ATM, SONET, leased lines, TDM, dial)
· Consistent service quality enabled by a flattened network architecture and efficient metropolitan area network

5) Who are Redback's Customers?

Redback markets its products to carriers wanting to provide wholesale data services and to service providers worldwide wanting to deliver broadband connectivity and value-added services on a mass scale. Key customers include carriers such as SBC, GTE, Bell Atlantic, Bell Canada, Qwest, and Singapore Telecom. Redback also is a strategic supplier to service providers including UUNET, EarthLink, PSINet, Concentric Network, Verio, and others. In addition, Redback as signed on AOL.

Check this out from

AOL uses Redback's platform to manage its DSL subscribers that stem from its partnerships with GTE and Bell Atlantic. The merger of Time Warner and AOL has the potential to create enormous opportunities for Redback, as AOL wants to upgrade its 20 million subscribers to broadband.
The Timer Warner merger will accelerate AOL's broadband plans. Midwestern service provider installed Redback gear to replace Cisco router solutions because of the cost and scalability advantages.
Back on January 26th, Redback received another major endorsement when PSINet , a global ISW, selected Redback equipment for the deployment of DSL (digital subscriber line) services throughout the United States.
PSINet is just one of many new Redback customers. In its most recently completed fourth quarter, Redback added 29 new customers, bringing total customer count to over 150.
Redback markets its products directly through its worldwide sales force, with offices throughout the U.S. and Canada, the U.K., France, Germany, the Netherlands, Japan, Hong Kong, Thailand, Singapore, and Australia, and through its strategic distribution partners, including Nokia and Fujitsu. Additionally, the company has Value-Added Resellers (VARs) that participate in its PowerPartners program worldwide.

6)Competition and market share:

Redback may be the current market leader for subscriber management systems, but it will be facing increased competition from some of networking's largest gorillas. Both Cisco and Nortel are making major moves into Redback's domain, and Redback can't feel too comfortable being in Cisco's crosshairs. It's certainly worthwhile for investors to keep a close eye on Redback's competitive landscape to see how its products stand up to that of its peers. Redback appears to have the current technological lead, but things can change quite rapidly in this field.

Of course, competing with Cisco is not always a bad thing. In the past, Cisco has proven itself more than willing to pay up for companies with complementary products or technologies in order to improve its system portfolio. It is within the realm of possibilities that Cisco, Nortel, or even Lucent would be interested in purchasing Redback in order to get their hands on some of the company's technological expertise.

Market share:
In the fourth quarter of 1999, Redback claimed 41 percent of the market for the specific broadband technology. Nortel came in second with 36 percent, while Cisco was third with 20 percent, according to market research firm Infonetics Research.

Anyone have a more up to date snapshot of market share?

Something else to think about by GorillaGorilla:

Another competition based link:

Any further thoughts?

7)Who manages Redback?

Vivek Ragavan, Chief Executive Officer and President
Craig M. Gentner, Senior Vice President of Finance and CFO
Randall J. Kruep, Senior Vice President of Sales
Pankaj S. Patel, Senior Vice President of Engineering

Board of Directors
Vivek Ragavan, CEO and President
Dennis Barsema, Director, Vice Chairman of the Board
James R. Flach, Director
Promod Haque, Director
Vinod Khosla, Director
William Kurtz, Director
Pierre R. Lamond, Director, Chairman of the Board
Daniel J. Warmenhoven, Director

Just announced:

Redback Networks, Inc. Appoints Kevin Q. Smith Senior Vice President of Operations
Former Cisco Executive Will Oversee Global Expansion of Redback's Operations
SUNNYVALE, Calif.--(BUSINESS WIRE)--August 8, 2000--Redback Networks, Inc., (NASDAQ: RBAK - news), a leading provider of advanced networking solutions, today announced that Kevin Q. Smith has joined the company as senior vice president of operations.
Smith, a sixteen-year industry veteran and prominent operations executive, will be responsible for managing all levels of Redback®'s operations and manufacturing worldwide. With his extensive background in manufacturing high-end optical and service provider equipment, Smith will oversee the global expansion of Redback's outsourced manufacturing operations across all the company's platforms, including the Subscriber Management System(TM) (SMS) and SmartEdge(TM) product families. He will lead the company's purchasing, quality assurance and new product introduction efforts, and will provide a top-level operational interface into the sales and engineering organizations.
``Kevin brings invaluable world-class operations experience and seasoned management skills to Redback,' said Vivek Ragavan, president and chief executive officer at Redback Networks. ``As we continue to build Redback Networks into a major networking franchise, Kevin's significant experience in multi-level plant and outsourced manufacturing, as well as global operations, will be critical in enabling us to attain our next level of growth.'
Prior to joining Redback, Smith was senior director of manufacturing and plant manager of high-end and optical systems manufacturing at Cisco Systems, Inc. (Nasdaq: CSCO - news). During his seven years at Cisco, Smith held several executive-level operations functions -- most notably he was responsible for shipping billions of dollars in revenue output, including nearly 33% of the company's revenue output in the last year. In that capacity, he successfully grew and managed Cisco's outsourced manufacturing capabilities globally. He was also responsible for introducing many new high-end service provider products into volume production and for integrating the manufacturing operations of acquired companies. Prior to joining Cisco, Smith held operations management roles at Apple Computer, Boeing, and Texas Instruments.

8)How will the Siara Acquisition affect Redback, and what about Bijan Khosravi leaving?

Redback's 4.3 billion dollar acquisition of Siara was key. This allows Redback to offer the total package to managing Internet users, which no other company can offer. Siara products offer optical solution for the metro-network, which is estimated to be a 20 billion dollar market in 2003. Siara also brings talented engineers that can help Redback with its SMS offering. Redback currently uses off the shelf Intel processors in their product, but with Siara's engineers (that helped create the AMD Athlon chip) Redback can make their own high-powered CPU instead of using Intel's CPU. Siara's technology is at the edge of fiber optic backbones, directing traffic as it goes onto narrow-band connections and into your house through your phone line. At the time of the announcement, people were stun to hear Redback buying a private company for 4 billion. Some wondered why Siara just didn't go public. The merger between Redback and Siara reduced Siara's time to market by about 8 months, allowed Siara access to Redback's partnerships that they've made across the US and globally, and the two companies would offer a more complete end-to-end solution than by themselves.

Some more thoughts on Siara:
The Siara acquisition dramatically expands the addressable market that Redback is targeting and will enable the combined companies to leverage Redback's existing customer relationships, sales force and research team.
Siara is in an elite class of next generation networking companies that have been able to command huge valuations for their cutting edge technology.
So, why is Siara so special? Siara is developing technology using fiber optics to manage Internet traffic. Networks that use photons to deliver traffic are inherently faster than networks that use electrons.
Siara will enable service providers to re-architect their networks to support multi-service platforms. By offering leading edge optical transport and Internet protocol routing, significant cost savings will be realized by service providers who use Siara products.
By combining technology, Redback is increasing the market for its products exponentially. In fact, industry research predicts that the market for New Access Network equipment (the term given to Siara's market) will exceed $20 billion by 2001. The market for Redback's subscriber management products is only around $2 billion.
In a nutshell, the combined companies will have the sales fore, customer base and technology to manage the network of the future. A strong presence in optical networking coupled with Redback's gear that allows service providers to offer broadband services will ensure a powerful company in the future.

Redback has enjoyed the luxury of a rich share price. As a consequence, it was able to use its currency to acquire the hot technology of Siara for billions of dollars. Through this acquisition, Redback is a force to be reckoned with.
While Cisco, Nortel and Lucent are formidable competitors, to say the least, Redback has a much sounder future than other hot technology companies.

Good Article on Siara:

Good quote from the much-respected Bruce Brown on internal conflicts and the shuffling of management in companies:
“Study the corporate culture and blending of any major acquisition. Companies simply don't need "double" of every position and worker. In fact, keeping everybody on board may not be the best use of capital resources.

The example of having two marketing executives being one too many is a perfect look at overkill in an already successful position being handled by one person. I'm sure it is not the only position that was in jeopardy. Study the merger of JDS and Uniphase. Watch what happens in the E-Tek and SDL culture. Same with other companies. Regard the majority of rumor as simple 'noise'.”

9)Financial Fundamentals at:


Is there a discontinuous innovation or a proprietary open architecture?
Redback's products allow users to change the speed of their broadband connection with a click of a mouse. Whenever a user wants to watch a video on demand or do voice over IP the ISP can give you more speed. You can't do this on a narrowband connection and i'd imagine all ISPs wanting to offer this kind of service to their users.
Does it have the potential to grow into a mass market phenomenon, become a standard?
In total, Redback & Siara are going after a 22 billion dollar market (by 2003/04) and considering they offer an end-to-end solution will mostly mean they'll take a big chuck of the market.
Are there high barriers to entry and high switching costs?
The fact that they offer the best product in the market place should keep the barrier some what high. While this doesn't mean much, Redback has the trademark on "subscriber management system".
Have value chains developed?
There are still some chains that need to be developed in the cable space, but over 80% of DSL connection uses Redback's SMS products. Redback has won a major alliance with Aol.
Have they crossed the chasm?
In the DSL space they have. Redback's strong alliance with Aol should help Redback in the cable space. In my opinion, DSL has an edge over the cable guys maily because the US Government has forces phone companies to open up and this will create competition. Copper wiring is found all over the planet and has more advantages over cable. With increased competition from DSL, i'd expect to see cable push harder and this should increase Redback's sales to the cable space.
Existence of hypergrowth?
Yes, Redback is experience hyper growth. Year-over-Year growth was 479%

11)Summary of Rule Breaker Characteristics (from xerohype) at:

Resources/Links: (much of the above info was taken straight from Redback's excellent website)
4.Daily Double article:
7.Good write-up by Eric Jhonsa at:
8.Don't know what something is? Go to:

*** Much thanks to xerohype for his beginning post at:
It provided many useful links and info. ***

- Chris Larsen

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