Redback hits metro realm: Siara acquisition broadens customer base - eventually

Redback Networks is officially in the metropolitan optical space, six months after acquiring Siara Systems in a huge gamble to extend its product reach. Last week Redback, which previously focused on subscriber management systems, unveiled its first product from the Siara combination - the SmartEdge 800 - an integrated optical platform for the metro and access markets.

The target customers are carriers looking to accommodate the expected growth in broadband applications and services by blending optical transport with the creation and delivery of services. The new access network market is expected to be a $23 billion opportunity by 2001, according to Goldman Sachs.

The SmartEdge 800 reduces the provisioning, management and delivery cost of Sonet/SDH private-line services, and lets service providers deliver time division multiplexing (TDM) and IP services in a single box. It allows packet-minded service providers to migrate from Sonet to IP services with a software upgrade instead of a truck roll.

"This multiservice optical transport product acts as a catalyst from the static one product, one service to be about dynamic connections and service-oriented networks," said Larry Blair, Redback's vice president of marketing.

At the heart of the multiservice platform are application-specific integrated circuits, or ASICs, that allow for transport of up to 8 million packets per second, said Simon Williams, Redback's director of product management. "The fastest routers today do 1 million packets," he said. "We have the capacity inside the silicon, and we own that. We're not getting it from someone else."

"[The SmartEdge 800] is very efficient in handling voice and data services off the same platform," said Andrew McCormick, senior analyst at The Aberdeen Group. "The architecture is unique."

The metro access platform handles multiple rings off the same chassis - reducing the equipment, external cabling and labor required - and simultaneously supports TDM and packet traffic. By so doing, SmartEdge allows service providers to evolve from TDM to packet to IP, said Williams.

The broadening of the company's customer set will not be automatic, however. "Once they come out with some new features, [SmartEdge] can have a lot of applications for green field networks," McCormick said. "They're still working on the IP backplane, which will open up their customer base and enable them to capture larger market share."

In the meantime, Redback is targeting RBOCs and interexchange carriers that need to handle traditional circuit-switched traffic as well as packets.

The SmartEdge 800 is undergoing beta testing in the carrier networks of Genuity and Netherlands-based ISP Cistron. And prior to the Redback acquisition, Qwest Communications gave Siara a spot in the local access ring of its network. Qwest now is testing the SmartEdge 800 in its labs.

Although Redback is ahead of upstart competitors from a development standpoint, the company still faces challenges with building mindshare and credibility, McCormick said.

The Redback product will be generally available in the third quarter. Until then, Redback will suffer a net loss financially as it absorbs the R&D expenses of the SmartEdge product, said Conrad Leifur, senior technology analyst at U.S. Bancorp Piper Jaffray. In the March quarter, Redback posted a net loss of $85.2 million, or 96cents per share, on a post-split basis. But the company also has about $600 million in cash on its balance sheet and gross margins in the 70% range, Leifur said.

In November 1999, Redback paid $4.3 billion - at the time, half its market capitalization - for Siara, a company without a product, revenues or customers. "The price they paid was validated by the Chromatis acquisition," Leifur said, speaking of Lucent Technologies' $4.5 billion deal last week (Telephony May 29, page 14). "[Redback] is basically on the same time line, perhaps even a little bit ahead, of Chromatis."