Telco equipment maker Redback turns profit

Redback Networks posted a third quarter profit, excluding expenses, on revenue that almost doubled from a year ago.

For the period ended Sept. 30, Redback recorded sales of US$70.9 million, a 95 percent jump from last year's third quarter tally of US$36.4 million. Revenue was also up 4 percent from the second quarter.

Net income for the quarter was US$9.1 million compared to a net loss of US$4.2 million for last year's third quarter. Net income excludes charges relating to amortization of intangible assets, stock-based compensation, certain federal and state income taxes, and other items.

Revenue was in line with analyst estimates, according to Thomson Financial Network. Earnings beat those estimates by $0.02 per share.

"We believe Redback has been executing well and its 3Q06 results came in above consensus estimates," states CIBC World Markets Analyst Ittai Kidron in a research report. "But bookings weakness and an aggressive guidance which counts on large contributions from BellSouth and BT suggest the risk profile for execution is now much higher for the next two quarters."

Redback expects fourth quarter revenue to be 10 percent better than the third quarter's.

"We believe up to 2 billion wireless and wire-line customers will be upgraded to new broadband networks from 250 million broadband users today," said Redback CEO Kevin DeNuccio, in a statement. "This network upgrade is up to 10 times larger than the last Internet build-out. This trend reinforces our vision that a single broadband network will unify communication and entertainment services over time."

A strong bounceback in BellSouth orders is key for the fourth quarter, Kidron notes. He also states that a quick conversion by AT&T from Redback's older SMS platform to the company's SmartEdge routers is vital for Redback to keep the account after AT&T's merger with BellSouth.

"While Redback stands a good chance to deliver, the margin of error is getting thinner," Kidron states.

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