Networking industry insiders must be feeling left out of this so-called technology resurgence. To counter the Web 2.0 deals, today the industry came up with one of its own: Ericsson is buying Redback for about $1.9 billion. That’s about $25 a share, and a 60 percent premium to the 90-day moving average on Redback’s share price.

Those of you too young to buy your own drinks may not know Redback, but is was once as highflying as say, Facebook. It was a company which made uber-VCs like Norwest Capital Partners, Telesoft and Kleiner Perkins Caufield Byers a lot of money….. and I mean a lot of money. But that was back in the day, the late 1990s. But then the bubble popped, and everyone assumed Redback would deflate along with it.

But they didn’t! The broadband boom happened, and suddenly everyone wanted to get a piece of Redback’s multi-service edge routing technology. That’s a fancy way of saying it makes boxes that allow phone companies sell DSL, broadband, telephone, TV and other services over the local loop. In 2005, sales were up 33 percent, and in first nine months of 2006, sales went up another 87 percent to about $197 million.

If things are going so well, why sell out now? Why not? After all, things aren’t going to get much better in the near future. For instance two of its mega-customers, British Telecom and Deutsche Telecom, are slowing down their spending, and that impacts Redback. DT is going through internal personnel convulsions, something that almost always impacts the equipment providers.

One of the analysts, Mark Sue, who is wiping an egg off his face right about now (he issued a note this morning saying that the chances of a Redback takeout unlikely, and did not even think of Ericsson as a likely buyer) claims there are backlog estimates of $100 million. That may be overly aggressive, in our view. We are not going to believe or not believe him for now, but still it is a wee bit of a red flag. On the upside, Redback is doing well in China, though I am not sure any U.S. companies make any real money in China!

However, we see that there are some problems looming for Redback. We agree with Sue when he points out that Cisco is getting ready to ship a new edge router and Juniper is ready to roll out the T960 and make further enhancements to it E320 range of products, all of which will compete. Maybe, now is a good time to sell.