Redback records large inventory write-down

Redback Networks kicked off the second-quarter earnings season on a sour note, as the company posted a 34% sequential drop in sales and a large net loss, partly due to an inventory write-off that exceeded quarterly revenues.

Redback posted a pro forma operating loss, excluding one-time charges, of 26¢ per share--$37.0 million--compared to a loss of 13¢ per share in the first quarter and a 5¢ per share loss in the year-ago period. Analysts surveyed by First Call/Thomson Financial were expecting a loss of 29¢ per share, an estimate that was lowered after the company adjusted guidance earlier in the quarter.

On a net basis, Redback lost $460 million, or $3.26 per share, compared to $287 million, or $2.41 per share, in the year-ago quarter. The net loss included $74.9 million in one-time charges for inventory write-offs and investment impairments.

About $64.6 million of the charge was due to excess inventory, largely related to a forecast of lower demand in the next 12 months for the company’s Subscriber Management System product for DSL providers, said Chief Financial Officer Dennis Wolf.

An additional $3.9 million was charged for severance and related benefits costs arising from the company’s job reduction in April.

“In the last two quarters, we have felt the full impact of an unprecedented downturn in the telecommunications industry, as key customers delayed their purchases,” said Redback Chairman Pierre Lamond. “It appears that this downturn continues unabated. None of us--not our competitors, not our customers--are able to predict with any accuracy when this industry recession will cease.”

Redback posted revenue of $59.4 million for the quarter, a 34% drop from the first quarter.

For the third quarter, Redback management said it expects sales to be the same as in the second quarter and the company’s pro forma earnings to be flat, or slightly higher. The company said it concurred with Wall Street’s full-year estimates of $260 million to $300 million in revenue and a pro forma loss of 76¢ per share.

Lamond said Redback would be extending an offer to a new CEO in the next few weeks. Former CEO Vivek Ragavan resigned in May.