Pipal purchase pumps Riverstone’s plan

Riverstone Networks’ recent acquisition of start-up Pipal Systems underscores the company’s strategy to use Multi-protocol Label Switching as the underpinning of the metropolitan Ethernet aggregation capability of its routers

SANTA CLARA – Riverstone Networks’ recent acquisition of start-up Pipal Systems underscores the company’s strategy to use Multi-protocol Label Switching as the underpinning of the metropolitan Ethernet aggregation capability of its routers.

Still in the development phase when acquired by Riverstone, Pipal was working on Ethernet, MPLS and other technologies for broadband aggregation, including Layer 2 Tunneling Protocol (L2TP) and subscriber management.

Engineers from Nortel and Redback Networks founded Pipal in 2001. The company employs 42 people. The acquisition was completed Jan. 3.

Riverstone is remaining tight-lipped about its plans for Pipal’s technology. The company will unveil more details this spring, says Steve Garrison, director of corporate marketing.

“They are developing next-generation technologies that help us offer service creation capabilities. It fits into our known focus of carriers and broader revenue bases” such as large companies with carrier-class network requirements, Garrison says.

Riverstone last year announced plans to target the enterprise market as a way to lift sagging revenue from carriers and service providers that have cut back dramatically on spending and network buildouts. For its fiscal 2003 third quarter ended Nov. 30, Riverstone posted a net loss of $27.8 million on revenue of $13.8 million. This compares with a net loss of $58 million on revenue of $10.7 million for the previous quarter and a profit of $2.2 million on revenue of $60.1 million for the third quarter of fiscal 2002.

Analysts pegged the value of the Pipal deal between $35 million and $40 million.

Pipal’s founders and top managers have authored several Internet Engineering Task Force requests for comment on L2TP and subscriber management techniques, Garrison says. These assets were particularly appealing to Riverstone, he says.

“There are a lot of bright guys there; a lot of intelligence in that team,” Garrison says.

Like MPLS’s Draft Martini proposal, L2TP can be used to merge Layer 2 services – such as frame relay, ATM and Ethernet – into IP networks. L2TP is a non-MPLS way to integrate legacy Layer 2 with IP VPN services and infrastructures. Cisco already offers L2TP on its routers for this purpose.

Subscriber management provides a way to personalize IP services by identifying the subscriber and setting up customized service levels, qualities and content access. Subscriber-management capabilities are particularly applicable to wireless networking, where vendors and operators are looking to offer mobile users personalized access to Internet and IP content through their handsets.

Despite the mystery of how Pipal’s technology will be used, analysts say the acquisition is consistent with Riverstone’s Ethernet/MPLS aggregation business case, although challenges remain.

“The Pipal Systems acquisition represents no major change in strategy for Riverstone – rather it has decided to lock in Pipal’s MPLS technology now when an acquisition can be done reasonably cost-effectively,” Current Analysis analyst David Dunphy said in a recent report. “Though Riverstone gained early implementation of a metro MPLS solution, consensus on the role of MPLS has yet to be established in the metro. Riverstone needs to prove it can successfully expand into its new market segments without losing focus.”