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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (39867)	7/8/2003 12:54:45 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71871

Investors beat retreat from Redback By Scott Morrison in San Francisco Published: July 8 2003 0:07 \| Last Updated: July 8 2003 0:07 Shares in Redback Networks tumbled 45 per cent on Monday after the struggling US equipment maker announced a debt-for-equity swap that would leave current shareholders with just five per cent of the company. Redback, which last week lowered revenue expectations, also warned that it could file for bankruptcy protection if the restructuring plan was rejected creditors, shareholders or regulators. Industry watchers said Redback's woes highlight continued difficulties in the network equipment sector, despite signs of market stabilization and recent strong share price gains by many of the industry's larger competitors, such as Cisco Systems and Juniper Networks. Many analysts cautioned that valuations have risen too high. Fritz Kaegi, analyst at Morningstar, said momentum investors have priced in strong growth and a return to sales levels of the past, even though such expectations are not borne out in capital expenditure plans of large telecom groups. Cisco shares have almost doubled since early October, while Juniper stock has more than tripled over the same period. Even smaller competitors such as Extreme Networks and Foundry Networks have seen similarly impressive share price gains. But while the networking equipment market appears to have stabilized after two and a half difficult years, few analysts see signs of near-term growth. "The optimists are setting the prices for a lot of these stocks," says Mr Kaegi. Given the continued slowdown in corporate spending on information technology, networking insiders and analysts have the said industry must undergo a consolidation phase before equipment makers can return to a sustainable level of profitability. Redback's situation is more precarious because the company remains saddled with high debt following a $500m convertible offering in 2000. Under terms of its restructuring, Redback will exchange $467m in debt for about 95 per cent of the group's common stock. The restructuring was considered necessary to shore up the group's capital structure and give it financial flexibility as it awaits a return in demand. But some observers remained skeptical about the company's ability to bounce back. The company late last Thursday said second quarter revenues would be below expectations because of weak telecommunications spending and the economic slowdown in Asia. By contrast, Juniper was expected to meet and possibly beat Wall Street expectations when it reports second quarter results on Thursday. Tim Luke, analyst at Lehman Brothers, said in note Monday that the steady move by large carriers to adopt internet protocol technology could produce "solid demand trends" for Juniper and he said the company's sales visibility may be continuing to improve. Networking equipment giant Cisco has also been helped by stabilsation in the company's core switching and routing markets. [Harry: SONS in a similar spot? High burn rate. Limited cash. Only difference is their end market segment is growing though slowly. Do they need to do a secondary soon???]