Firm without product or revenue sold for $4.7 billion

Redback Networks agrees to buy Siara Systems, Web technology developer

November 30, 1999|By BLOOMBERG NEWS

SUNNYVALE, Calif. -- Redback Networks Inc., whose shares surged 13-fold since it went public six months ago, agreed yesterday to buy Siara Systems Inc. for about $4.7 billion in stock to develop products that speed Internet traffic.

The networking-equipment maker will issue 31.3 million shares for closely held software company Siara, which has no products for sale and no revenue.

Redback had $9.21 million in sales last year, which climbed to $20.6 million in this year's third quarter as companies including GTE Corp. bought its gear. Redback shares yesterday rose $13.50 to $150. Redback's devices make it easier for regional phone companies and cable providers to offer high-speed Internet services. Siara is developing a system using fiber optics to manage Internet traffic and make it faster and more secure. That will help Redback compete against rivals such as Nortel Networks Corp. and Cisco Systems Inc.

"The stock market has decided that the customers you grab for the future are much more important than the money you make today," said analyst Paul Johnson of Robertson Stephens in New York.

Redback, of Sunnyvale, Calif., provides high-speed Internet access to customers like Qwest Communications International Inc., SBC Communications Inc. and Bell Atlantic Corp. It had a loss of $1.62 million, or 4 cents a share, in the third quarter.

Siara, which hasn't unveiled any products, said it's working on equipment to help process the information going over the Internet service providers' networks.

The company, based in nearby Mountain View, expects to start testing its system in the next few months. Qwest said last week that Siara will be part of the access network it's developing, though it didn't give specifics.

"This extends the product line to meet the network needs of [Redback's] current customers and helps it attract future customers," said Johnson, the Robertson Stephens analyst.

The companies said the purchase will be completed in March.

Analyst Gina Sockolow of Brean Murray Securities said Redback is getting more for its money than Cisco did when it paid $7.29 billion this month for Cerent Corp. Cerent makes equipment that acts as a bridge between traditional copper phone lines and new, high-speed fiber-optic cable.

In addition to the fiber-optic technology, Redback is getting Siara's specialized semiconductors to route data traffic and software to manage network services better, she said.

Redback also gets semiconductor engineers who helped develop Advanced Micro Devices Inc.'s K6/K7 microprocessors and engineers from ADC Telecommunications Inc., Lucent Technologies Inc. and Cisco. Atiq Raza, Advanced Micro's former president, joined Siara's board in August.

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