Redback issues earnings warning

Networking vendor Redback Networks continued its recent travels down a rocky road, yesterday warning investors that a capital-spending slowdown by service providers will cause revenues for the second quarter to be about one-third of estimates.

Dennis Wolf, Redback’s chief financial officer, said the company now believes it will receive $55 to $60 billion in revenue for the quarter, much less than the $87 million estimated by analysts.

“The environment for Redback and our competitors has weakened this quarter, as we all continue to feel the full impact of an unprecedented industry slowdown,” Wolf said. “Large carriers and service providers are cautious in building out their infrastructure and in their overall capital spending. These carriers and providers are meeting customer demand for bandwidth by reallocating capacity within their network and are only buying equipment to meet the immediate needs of their customers.”

Wolf said the company only recently realized there would be a revenue shortfall, as key customers delayed or reduced orders during the last two weeks.

“We believe that these delays are delays rather than lost business, but our visibility into the next quarter continues to be very difficult,” he said.

In addition to the revenue shortfall, Redback’s quarter will include a “substantial” inventory writedown, which will be detailed during the company’s July 11 analyst conference call, Wolf said.

The bad news follows significant administrative upheaval at Redback Networks, including the forced resignation in May of CEO Vivek Ragavan, who had been the company’s top officer for less than a year. Redback Chairman Pierre Lamond is acting as interim CEO during the search for a new chief executive, which the company hopes to complete next month.

Redback’s stock price was hammered on the news, falling 23.7% today ($2.70)—to $8.61 per share—in midday trading.