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To our shareholders, customers, partners, and employees:

As many of you know by now, Redback Networks has been acquired by Ericsson, one of the world’s leading telecommunications suppliers, for $2.1 billion or $25 dollars per Redback share. The transaction was completed in January, and we are now a wholly owned subsidiary of Ericsson.

To continue our progress in the market, Redback will retain its brand, leadership team, and operations focus as an independently run subsidiary of Ericsson. The combined company creates the leading telecommunications equipment supplier in the world. Redback’s carrier class IP routing technology, combined with Ericsson’s world class wireless solutions, addresses the key challenges carriers around the world face today—upgrading their broadband networks to deliver triple play and enabling broadband mobility.

Ericsson is the #1 provider of wireless infrastructure in the world with customers in 140 countries. The addition of the market leading SmartEdge Multi-Service Edge Router (MSER) to its portfolio completes a compelling end-to-end solution that will help service providers build a multi-service edge to deliver broadband voice, video, and data services over wireline and wireless devices. The multi-service edge is a key component of next generation networks that enables revenue generating services and significantly reduces the network total cost of ownership.

The feedback from customers and partners has been extremely positive and is a strong validation of the benefits realizable with the Redback and Ericsson combination. By leveraging Ericsson’s sales and services footprint, Redback immediately expands its global reach from 80 countries to 140 countries. In 2007, we are planning to hire many more people than in 2006 to support our growing customer demands and to maintain the technology advantage over our much larger competitors. The Redback and Ericsson combination accelerates Redback’s ability to continue to develop its innovative IP routing technology to help shape the future of advanced broadband networks for our customers and partners.

When I look back over 2006, it was yet another year of growth and innovation for Redback. We became the fastest growing router company and now count 15 of the top 20 telecommunication companies in the world as SmartEdge customers. By dominating triple play decisions around the world, we gained 74 new customers and firmly established ourselves as a leader in MSER. Service providers have found that our innovative technology provides meaningful benefits and can help them redefine their network economics.

Let me close by thanking our customers and partners, who have supported Redback and helped us accomplish what we have so far. Redback will remain focused on being an innovator in multi-service edge routing and a market leader in triple-play deployments for service providers worldwide. Though this is a meaningful step in our history and the realization of our vision, it is not an ending but a beginning. We now have the unique opportunity to challenge our competitors, serve our customers, and ultimately be #1 in telecommunications equipment.

Kevin DeNuccio
President and CEO
Redback Networks, An Ericsson Company