IPOs Will Test Market's Optical Optimism

The stock market has been on a white-knuckle ride for the past few weeks, but the IPO market only recently began to drag, and optical networking IPOs remain some of the strongest of the bunch (see Optical IPO Market Sizzles). The next few weeks, however, will reveal whether optical issues will continue to be a bright spot in a mirthless market.

One of the most anticipated IPOs expected to price next week is Ixia (proposed Nasdaq: XXIA) -- a company that makes diagnostic systems used to analyze traffic on IP and other high-speed optical and electrical networks.

Ixia is scheduled to price on Oct. 17 at an expected range of between $10 and $12 per share, underwritten by Merril Lynch & Co. Inc. (NYSE: MER). It's a good news, bad news sort of deal. The bad news is that Ixia is a new company: more than half its sales come from five customers. Also, there haven't been any similar companies that have gone out in the past few months -- although that might not faze optical optimists.

The good news is that Ixia is a profitable company. "That could be a reassuring thing to investors to know that they're getting something that won't be complete garbage tomorrow," says Dan McCarthy, a market analyst with IPO.com.

Also on track to price next week is the tracking stock for Alcatel SA's (NYSE: ALA) Optronics Division, which makes optical components. Alcatel Optronics (proposed Nasdaq: ALAO) is expected to price at between $75 and $88 per share, but some analysts are concerned that the tracking stock is too closely tied to Alcatel's performance, as opposed to having the freedom to operate as a standalone components business (see Component Spinoffs: Dynamite or Duds?).

In two weeks, a less befuddling offering may come from Optical Communication Products Inc. (proposed Nasdaq: OCPI), which makes optical transmitters, receivers, transceivers, and transponders for metro area networks. The offering is expected to price between $10 and $12 per share, with UBS Warburg and J.P. Morgan & Co. (Nasdaq: JPM) leading the team of underwriters.

Other potential IPOs coming up include ILX Lightwave Corp. (proposed Nasdaq: ILXL), which makes testing and measurement equipment for optical components vendors. Recently it's underwriters set a price range of between $15 and $17 per share, but it's not yet known when the offering is set to begin trading. It could be a big deal in more than one sense of the word: ILX is in a good position to take advantage of the increasingly desperate demand for high-end test equipment (see Test Gear Shortage Snags Startups).

Components vendor Alliance Fiber Optic Products Inc. (proposed Nasdaq: AFOP) elaborated on its IPO plans Friday as its underwriters set a price range of between $11 and $13 on 6.25 million shares. Merrill Lynch is the lead underwriter on this deal, too.

Another components maker, Cidra Corp. (proposed Nasdaq: CIDC), just filed for its IPO this week. But investors should keep an eye on its customers, who include its competitors, and its financial outlook, which is currently peppered with large losses and slim revenues (see Cidra IPO Raises Eyebrows).

Some of these IPOs may be months in coming, but IPO.com's McCarthy says the offering pace might pick up if the stock market continues to climb out of the hole it fell into this week. "Things turn around in the optical category more quickly than most people think," he says. "If today's rebound continues, we may see a lot more companies coming back into the water."

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com