Riverstone cuts 30% of staff

Riverstone Networks Thursday said it will cut 30% of its staff due to weaker than expected second quarter results.

The company said it expects revenues and earnings for its second quarter ending Aug. 31, 2002, to be sharply lower than analyst expectations. The company is anticipating revenue of approximately $10 million to $15 million, less than half of the $30 million Wall Street was expecting.

Based on these revenues, Riverstone expects to record a pro forma loss of approximately $0.18 to $0.24 per share. Wall Street anticipated a pro forma loss of $0.11 per share.

Pro forma results exclude second quarter charges of approximately $5 million for severance expenses and charges associated with excess facilities, as well as amortization of stock compensation expense. With these charges, Riverstone expects a loss of approximately $0.23 to $0.29 per share.

As a result of the disappointing quarter, Riverstone said it will reduce its workforce of 475 by 30%. Riverstone expects to have less than 350 employees worldwide following the reduction, which will take place over the next month.

The company also said it will realign to pursue new market opportunities, including cable and the federal government, as well as the corporate enterprise.

Riverstone's forte to now has been in selling metro Ethernet aggregation routers to service providers. But service providers are now doing more "window shopping" than buying, says Riverstone President and CEO Romulus Pereira.

"The telecom market has become increasingly challenging as service providers around the world delay new service and infrastructure projects," Pereira says. "Previously robust regional markets have softened in recent months. These (events) have combined to create a more difficult selling environment for Riverstone.

"While we believe the telecom market offers the best long-term opportunity, we realize that it will remain in a state of protracted recovery," Periera says. "During this period we will maintain our commitment to our service provider customers. At the same time, we will leverage opportunity in adjacent markets where our technology and products provide immediate cost benefits to end-users. We believe now is the right time to build upon the initial traction we have established with our partners in these markets and capitalize on opportunities that may have previously been passed up."

In addition to the cable and federal government markets, Riverstone plans to target enterprises that are looking to set up private MPLS campus networks instead of outsourcing their campus networking requirements to service providers, Pereira says. Riverstone will also modify its ES 500 edge access routers for enterprise duty, and strip some expensive software and carrier-class redundancy capabilities from its RS routers to price them for the enterprise, he says.

Riverstone will also look to additional resale partners and potential OEMs for penetration into enterprise accounts, Pereira says.

Riverstone expects to save $7 million per quarter from the workforce reduction beginning in the third quarter of the current fiscal year.

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