Unisphere's Uphill IPO Battle

Despite new customers and increased revenue, Unisphere is forced to reduce its IPO price target again

August 27, 2001

3 Min Read
Unisphere's Uphill IPO Battle

Unisphere Networks Inc. (Nasdaq: UNSP), the American spinoff of the German telecommunications giant, Siemens AG (NYSE: SI; Frankfurt: SIE), today announced its largest Chinese contract win.

This news comes two days after the company lowered the price range of its pending initial public offering for the second time since it filed with the Securities and Exchange Commission back in September of last year.

The deal with Guangdong Telecom, a wholly owned subsidiary established as a business entity by China Telecom in Guangdong Province, is estimated to be worth about $4 million, according to Chen Xu, Guangdong area telecom industry manager for China Weal Business Machinery Co. Ltd., a reseller involved with the project. Specifically, Guangdong Telecom will be using Unisphere’s ERX-1400 routers to aggregate DSL traffic with deployments in Shezhen and Zhuhai, two of China’s leading special economic zones.

This is the biggest deal Unisphere has signed in China so far, and it is in the top five deals it has signed to date in all of Asia, says Adam Judd, vice president of Asia Pacific for Unisphere. The company’s largest Asian contract, with Korea Telecom, is estimated to be worth about $12.7 million, based on information found in the latest S-1 filing with the SEC. Korea Telecom is listed as one of the companies generating 10 percent or more of Unisphere's $127.11 million in revenues in the last nine months ending June 30, 2001.

”China is a critical piece to the Asian story,” says Judd. “It is still the sleeping giant. For every 100 people in the country, only four have fixed telephone lines. That’s tremendous potential just for basic infrastructure.”

This announcement comes two days after the company reduced its price range for its IPO to a range of $11-$13 from $15-$17 per share. This is the second time the company has lowered the price of its offering. Originally, Credit Suisse First Boston, the bank handling the offering, had priced the 8.5 million shares at $20 to $22 a share (see Unisphere Tunes Up for IPO).

With the stock market’s continued decline over the past several months, it’s no surprise that a company would have to adjust its price range. But the fact that Unisphere is lowering the range while it continues to increase its revenue and announce new customers highlights how much things have changed over the past 12 to 18 months.

Last summer, companies like Corvis Corp. (Nasdaq: CORV) and Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) broke records on their first days (see Avici and Corvis Make Stunning Debuts). At the time neither company had announced a customer or any revenue. Unisphere, on the other hand, has steadily expanded its customer list, adding carriers like Korea Telecom and Deutsche Telekom AG (NYSE: DT). The company has also steadily increased its revenue numbers (see Unisphere Posts 47% Revenue Growth ). And it's become one of the leaders in the lucrative edge routing space.

“I don’t think this is a reflection on the company as much as it’s a reflection on the market,” says one analyst who didn’t want his name used. “It’s just bad timing.”

The performance of another spinoff that entered the public market earlier this year should give Unisphere cause for optimism. Riverstone Networks Inc. (Nasdaq: RSTN), which also makes switches and routers and was spun out from Cabletron Systems Inc. (NYSE: CS) back in February, has also announced several new contract wins, including a few in Asia (see Cisco, Juniper, Lock Down Internet Router Market ).

While Riverstone's stock price hasn’t skyrocketed, neither has it been obliterated, trading up from its debut, which happened to occur the morning after Nortel Networks Corp. (NYSE/Toronto: NT) dropped its earnings warning bombshell (see Nortel's Nasty Surprise). The entire screen of the Nasdaq was lit red that morning, as Riverstone’s shares traded for the first time (see Riverstone IPO Toughs It Out).

- Marguerite Reardon, Senior Editor, Light Reading

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