Santa Clara, California, Sept. 20 (Bloomberg) -- The following is a transcript of a Bloomberg interview with Romulus Pereira, chief executive of Riverstone Networks Inc. The reporter is Scott Lanman.
LANMAN: Welcome to the Bloomberg Forum. This is Scott Lanman of Bloomberg News, and I'm speaking with Romulus Pereira, chief executive officer of Riverstone Networks, Inc., maker of computer networking equipment. Thanks for joining us, Rom.
PEREIRA: Thank you, Scott.
LANMAN: Today, Riverstone said it had its - said it had a profit in its fiscal second quarter, one quarter ahead of its plans, and it reversed a year-earlier losses, sales more than double from the year-earlier period. Now, Rom, since revenue was in line with the forecast of low- to mid- 20 percent sequential growth, how did you achieve profit in the quarter? And what specifically did you do, I guess, to keep costs down?
PEREIRA: A number of things. I mean, one, we are, overall, in a market environment that for the last year has been anything but uplifting. So, we've always been very focused on profitability. And in market conditions like this, we realized that, cash on the outside is very hard to come by. So we had to rapidly get to a cash-generating model. We also are fortunate in that we play in a market that is growing fairly rapidly, allowing us to achieve the kind of top line growth that allows us to also put back into the infrastructure.
But I think the strongest tribute to this whole phenomenon for us has been that we're able to achieve top line growth with efficient usage of our resources, signaling, a very natural attraction for our product in the marketplace. That, coupled with good prudent fiscal policies on our end allowed us to essentially get to profitability a quarter ahead, but still continue to post very good growth in a market environment like this.
LANMAN: Now, was your decision not to give guidance right now based on the terrorist attacks or just how the telecom equipment market has been in flux, in general?
PEREIRA: No. It was specifically tied to the terrorist attacks of September 11th. We had - for the previous quarter, we are fortunate that our quarter ended in August. But for guidance for this quarter, we are only about eight days away from the event. At this point, it's hard for us to tell what's going to happen with our customers. We had a complete stop in sales activities for most of last week.
We are going to wait and talk to our customers to find out whether there's any slowdown in project timings as they look to refocus maybe on beefing up existing infrastructure or whether there are even opportunities for us as they look for redundancy, off-site storage, video conferencing, etc.
So we picked the end of October for a couple of reasons. One is to get some distance between us, so we could see more clearly. But, secondly, to actually see what our customers are saying, whether they are considering this to have an impact on their business and then correlate that to what we're actually seeing in terms of sales activities.
LANMAN: So do you believe that at the end of October, you'll be able to give investors a good idea of what your sales and profit will be in the quarter?
PEREIRA: Well, assuming that things return to equilibrium fairly quickly, yes. If the economy takes a funny left turn again, you know, it's all up in the air.
LANMAN: Does this mean that you've officially withdrawn the prior guidance of fiscal 2002 sales raising 155 percent and losing a penny a share for the year?
PEREIRA: No. I think what we essentially did was we said, we are going to defer the guidance part of this call until the end - until the end of October. So consider us as having broken our earnings call into two pieces. What we did reaffirm though this time, because we can see that with slightly better clarity, is our longer-term guidance that said look, no matter what the environment is, we have over the past eight quarters outperformed not only the market, but the peers in our group. And regardless of market conditions, short term, long term, we believe we are well-positioned from both product standpoint, from momentum, from revenue standpoint, as well as good diversity in our customers, to continue to outperform the peer group, as well as the markets.
But in terms of helping build the shorter-term model for our - for our investor community, consider part two of the call at the end of October.
LANMAN: How much is the overall - or do you see the overall market for metro networking equipment increasing from '01 to '02? And are companies increasing their spending on metro networks?
PEREIRA: That's a good question. You know, this is something we grapple with on a regular basis. Because it's an emerging market and different people still have different ideas of what metro is, and they're not very clear how to break up the optical transfer from the electrical and the whole thing from the assets, the numbers are all over the place.
What we do know is that Light Reading recently, for example, came out with a study on the optical metro Ethernet, and it's a fairly detailed study. And they posted us as having number one market share there on the metro Ethernet, with I believe about 24 percent market share.
LANMAN: OK. Do you hope to grow more by adding new customers or selling more equipment to existing customers?
PEREIRA: Both, definitely both. Our existing customers - and we have a number of large customers, are overseas. So not to just focus on the U.S., but we've got people like Korea Telecom; Hutchinson Global Crossing, one of the largest carriers in Hong Kong; Chung Hua Telecom, the largest carrier in Taiwan; a lot of large carriers and incumbents in Europe, but also people like Qwest and Cox Communications, Scientific Atlanta, Bell South, etc., in the U.S., that are now just beginning to start to do business with us.
So we're expecting to see a tremendous accelerated growth from these guys as they start to get these deployments rolling seamlessly. But there are still a lot of customers that we are in trials with, and a lot that we're still talking to. So, this thing has, along multiple axes, the opportunity for expansion.
LANMAN: All right. Can you explain one of the product points that you discussed in the conference call? Maybe not everybody might understand what exactly it means that you've been ahead of rivals in having MPLS and light martini cards, I think that's what you're referring to. What does that mean for customers?
PEREIRA: Right. Martini is a second in the MPLS family that allows the creation of virtual leased lines. Think of them as virtual private lines, if you would, the layer two leased lines that you typically get, like the T1s and T3s and DS3s from the phone company. We bet on MPLS long before anyone else did. Not only that, we did it in a way that was very flexible for our end customers, in that we could send them upgrades to their hardware without physically replacing their hardware, so, you know, programmable hardware.
The benefit of that is, it allowed us because we started earlier than anyone else and focused on that quite significantly, it allowed us to get MPLS out before anyone else. The benefit of having MPLS is, it's absolutely becoming the cornerstone of provisioning bandwidth, which is the precursor to running any application over a more intelligent network.
And if I take some of the events that have transpired lately, things like video conferencing and off-site storage and off-site backup absolutely need provisioned virtual pipes, if they're going to stay out of each other's way, because you don't want a storage stream overwriting a video conferencing stream. So the demand for MPLS as a key requirement in metro networks today is a very vital part of all of the requests for proposals and the RFPs.
Being the only company today that is actually shipping and has a stable product, it's affording us opportunities that a lot of our competitors are running to catch up with. We also have one of - we also have probably the only live win today with Hutchinson Global Crossing in Hong Kong, which is striving to bring to a million residents across Hong Kong movies on demand, music and other streaming content.
So for us, this is part of the focus we have and part of why we're able to get to profitability sooner. Having good product results in more natural attraction in the business, which means that we're able to grow revenues by expending less energy and resources.
LANMAN: OK. Thanks for that explanation. Let me ask you something about company travel. Are you cutting travel expenses any way or putting in any restrictions? And are employees afraid to fly, and how are they flying?
PEREIRA: I think travel is getting cut all by itself right now, simply because it's harder to find flights; there's some amount of uncertainty; and it's just more inconvenient. And so, given that, we have a lot more video conferencing going on.
In the past, when we would suggest to customers that we'd like to do video conferencing with them, we were always concerned that that would be interpreted as we don't think the customer is important enough to go visit. So we always felt compelled to get on a plane and go there. Now, there's a lot more acceptance on both sides that this is not something that signals a level of importance, but it may become actually part of doing business. And so, we're actually finding people willing to go set up videoconference connections and do that with us. We've already done - probably half a dozen more I've done this week than I've done all of the year put together.
LANMAN: Have you bought more equipment for that purpose?
PEREIRA: No. We have the equipment. I mean, I've done six this last week. I think prior to that, I'd done maybe three for the whole year prior to that.
LANMAN: Which equipment do you use?
PEREIRA: We use a number of - we use - we use Detail. We use Polycom. We use PC-based solutions. It's just - the stuff was - because of H.323, voice-over-IP solutions, the stuff all tends to be very interoperable with each other. And sometimes, in places where we don't have one, we'll go to the local Kinko's and use their video conferencing services...
LANMAN: Now, let me just ...
PEREIRA: ... for the sales force, that is.
LANMAN: Let me just go back to your guidance one last time. You were - you were profitable in the quarter that just ended. Is it fair to assume that you will be profitable again this quarter but - or does that really depend on - or is that what you're going to talk about in a month from now?
PEREIRA: Yeah. We will talk about that in the October quarter. But, if you look at our history, we've taken a fairly conservative stance of avoiding seesaws. And once we step out in a direction, we tend not to do that unless we're sure we can sustain it. So we try not to overreach the business. So I think, if we hit profitability this quarter, that it's probably fair to assume that we did that with a fair amount of looking at whether we - it's sustainable or not.
LANMAN: OK. Thank you very much, Rom.
PEREIRA: Thank you, Scott.
LANMAN: This is Scott Lanman of Bloomberg News. And I've been speaking with Romulus Pereira of Riverstone Networks. |
