A year after openly discussing a public offering -- even handing out revenue figures, something a private company doesn't have to do -- Force10 Networks Inc. is still sitting on the sidelines, still privately held, still awaiting its chance to look goofy on TV ringing the Nasdaq bell.
Company officials won't talk. VP of marketing Andrew Feldman notes, without elaborating, that an IPO is still in the plan.
But when? A year ago, Force10 collected $40 million in what was supposed to be its final round of funding. Board member Dick Kramlich of New Enterprise Associates (NEA) said last year that Force10 was expecting $60 million in revenues for the year, and based on available research, the company appears on pace to break $100 million this year. (See Force10 Revs Revenues.)
One source from the financial community says Force10 was targeting a second-quarter IPO, and others told Light Reading that the paperwork was being prepared in March, with Morgan Stanley purportedly chosen as lead underwriter. (See Sources: Force10's Prepping Its IPO.) Apparently, something has held up the process.
One instinct would be to assume business has slipped, but the numbers appear to shoot down that theory.
The Dell'Oro Group listed Force10 as No. 2 in the 10-Gbit/s Ethernet switching market during the second quarter -- behind Cisco Systems Inc. (Nasdaq: CSCO), of course. Synergy Research Group Inc. lists Force10's second-quarter revenues at $29.1 million, up 37 percent from the previous quarter and nearly double the company's second-quarter 2005 revenues.
Other conditions aren't so sanguine, however, as the stock market turned sour after a strong spring. In communications chips, conditions were so soggy that Wintegra Inc. delayed a June IPO at the last minute; the company has since put its IPO on hold indefinitely. (See Net Processors Await an IPO.)
Most of those that have gone public have been disappointed, even if they're not Vonage Holdings Corp. (NYSE: VG).
Take the case of Infineon Technologies AG (NYSE/Frankfurt: IFX), which had to water down the IPO of Qimonda AG, its former memory-products division. Qimonda went public earlier this month, but the number of shares sold was cut by one-third to 42 million, and the price got slashed to $13 per share from a proposed minimum of $16. All told, the IPO raised $546 million instead of an expected $1.1 billion.
Another challenge IPOs face is the increased regulatory scrutiny under the new Sarbanes-Oxley rules. Speaking about IPOs in general, Bill Tai, a partner with Charles River Ventures , notes that "the filter to go public has gotten a lot tougher since the bubble."
Some sources suggest this is exactly what has slowed Force10's progress. Wall Street is griping about Sarbanes Oxley in general, with some saying it's driving firms to go public overseas on AIM, the London Stock Exchange 's trading vehicle for small companies worldwide.
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Interesting question. If we assume that they are not raising private equity for the sake of doing so especially when they have raised such a ridiculous sum already one could infer that their financial model is not as good as it might seem. In other words perhaps they are not cash flow positive which seems nuts if you believe thay are on a runrate to do $100m in revenue.
However if you believe that they are burning $4M per month, as was mentioned in a previous post, then this amount would cover them for about 12-15 months of burn depending on your margin assumptions. This would actually provide the kind of cushion customer and investors would like to see given the ipo window may be closed for a while.
It's still hard to imagine having a $100M revenue and not having a profit model you could take public - if you look at networking equipment vendors over the past 10 years that would rank up there with one of the worst performing financial models for that size company. Plenty of companies have demonstrated breakeven to profitable models at half this revenue.
They still have to fully finish their restatements. With their history of turning up more discrepencies everytime they go in there, they're hardly in a position to spend big bucks for another startup.
That would save Nortel, but only if they decided to do other things for enterprise like WLAN. I hear they are focused on a WLAN startup now that they are cleaning up the balance sheet. F10 would not sell for less than $500M, probably more like 700M now (Unisphere=same revenues, less investment in technology, smaller market opportunity).
But knowing Nortel, they'll find a way to waste the opportunity that is right in front of them (lots of change in the enterprise = new opportunity to re-enter).
Maybe Terrence and Phillip will someday take over Nortel. Blame Canada!
Do they have much engineering/QA outsourced to India/China? If so that probably accounts for any product delays. Save a few dollars on salaries, and lose it on delays and quality.
F10 had announced a high performance, low cost 10 Gig Ethernet switch about two months ago. The switch is oem'ed from Fulcrum Micro, a Los Angeles based start-up. The product is not GA yet and quantity may be limited for awhile. This may not be of impact on the IPO delay at all.
F10, However is not an easy sell to investors.
Morgan Stanly is also quit picky on the quality of its IPO's and F10 will need to be closer to profitability with an aggressive sequential growth Story. Don't be shocked If this doesn't go until Q2 07, or they get bought.
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