Unisphere Posts 47% Revenue Growth

Can healthy sales of its edge router product warm up investor interest in an IPO?

May 3, 2001

4 Min Read
Unisphere Posts 47% Revenue Growth

Unisphere Networks Inc. (Nasdaq: UNSP), the American spinoff of Siemens AG (NYSE: SI; Frankfurt: SIE), is trying to drum up renewed interest in its IPO by touting revenue growth at a time when some equipment providers are actually shrinking.

The company, which filed for its initial public offering with the Securities and Exchange Commission back in September is about to update its S-1 filing by plugging in pumped-up quarterly revenue numbers (see Unisphere Tunes Up for IPO), according to officials at the company.Unisphere will report $44.1 million in revenue for its second quarter of 2001, which ended in March. This compares to $30.1 million in the previous quarter, sequential growth of 47 percent. Officials would not say how much they lost in the quarter, but the numbers were expected to be filed with the SEC shortly.

Although the company would not comment specifically on the breakout of those numbers, analysts say the majority of its growth likely comes from its edge routing/broadband aggregation products, the ERX 700 and ERX 1400.

“The ERX is selling like hotcakes,” says Michael Howard, principal analyst and co-founder of Infonetics Research Inc.. “I’ve even heard competitors saying that they’ve seen them in more and more accounts. They seem to have gotten the formula right for the ERX: It’s got broadband aggregation, full routing, and it’s a fast, compact, well-priced product.”Over the past several quarters Unisphere has steadily been improving its market share against market leaders Cisco Systems Inc. (Nasdaq: CSCO) and Redback Networks Inc. (Nasdaq: RBAK). During 2000, carriers spent about $610 million on edge aggregation equipment, according to Infonetics. In the fourth calendar quarter, Cisco and Redback were almost evenly split in terms of market share, with 42 percent and 37 percent respectively. Unisphere, which had no market share just five quarters earlier, ranked third last quarter with 8 percent, say analysts at Infonetics.

The ERX also competes in edge routing against Cisco, Juniper Networks Inc. (Nasdaq: JNPR), and Riverstone Networks (Nasdaq: RSTN), and it has improved its share of that market as well. Working through Siemens' sales channel, Unisphere has won most of this business overseas, says Kevin Mitchell, directing analyst of service provider networks for Infonetics. Because Siemens will still own a large portion of Unisphere after the public offering, that relationship is expected to continue (see Unisphere Registers For IPO).

How well has it done overseas? According to Infonetics, the company generated about 75 percent of its business outside of North America, with about 60 percent of its total business being done in Asia Pacific last quarter. Most of its customers are top-tier carriers like Hanora Telecom (Korea’s largest broadband provider), Telekom Malaysia, and Deutsche Telekom AG (NYSE: DT). Most recently it announced a contract with Beijing Telecom to deploy ERX equipment in 14 provinces in China.

Its international base puts Unisphere in a good position for two reasons, says Mitchell. For one, carrier capital spending cutbacks, which have recently hurt Redback and Cisco in the U.S., haven’t affected Europe and Asia as much. Secondly, most of the growth in the broadband aggregation market, which is expected to grow to about $2.1 billion by 2004, will come from sales outside of North America.

Unisphere has also targeted two other smaller, but growing markets with its SMS 2100 voice mediation switch, which converts voice circuit traffic into IP traffic, and its SRX 3000 softswitch platform. In the voice gateway market -- which, according to Infonetics is expected to grow to $2.7 billion by 2004 from $88 million last year -- Unisphere was second in market share at 18 percent last quarter.

The SRX softswitch isn’t yet shipping, but the market potential is big -- about $1.7 billion by 2004 up from about $35 million in 2000, according to Infonetics. But Unisphere will also have to contend with competition from a slew of other companies, including, again, Cisco, Convergent Networks Inc., Lucent Technologies Inc. (NYSE: LU), Sonus Networks Inc. (Nasdaq: SONS), Telica Inc., Oresis, Santera Systems Inc., Rapid5 Networks, andTaqua Systems.Unisphere officials say the company is waiting for market conditions to improve before going public. The last networking company to take the plunge into the icy IPO waters was Riverstone (see Riverstone IPO Toughs It Out). Its price started at $13 a share and fell as low as $6.62. Today, it was trading at $17.09.

“In January, people were saying they thought things would turn around by March and that the IPO market would pick up by September,” says Gina Sockolow, an analyst with Buckingham Research Associates (BRA). “But it’s now May and things still haven’t turned around. Clearly, Unisphere is getting ready for the public market.”

-- Marguerite Reardon, senior editor, Light Reading http://www.lightreading.com

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