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August 24, 2006
So... What about that IPO?
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.
Finally, it's possible -- albeit really unlikely -- that Force10 officials just like seeing their name atop Light Reading's Top Ten Private Companies. Maybe they're even trying to set a record for the longest time spent on the list. Fat chance. They'll have to bump off Calix Inc. (NYSE: CALX) first. (See LR Shakes Up Private Companies List.)
— Craig Matsumoto, Senior Editor, Light Reading
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