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BigBand Holds Off IPO Plans

Light Reading
News Analysis
Light Reading
5/28/2004

BigBand Networks Inc. officials say an IPO is possible, but it will have to wait at least a few quarters while the company digests its recent deal with ADC Telecommunications Inc. (Nasdaq: ADCT).

BigBand picked up ADC's Cuda cable modem termination system (CMTS) and FastFlow provisioning software for an undisclosed sum earlier this week. In exchange, ADC picked up some equity in BigBand (see BigBand Buys ADC's IP Cable Unit).

The extra weight means no fast IPO.

"We're not going to go public this year," says Seth Kenvin, BigBand vice president of corporate development. "Maybe next year, once we can show we can achieve this integration" of the ADC operations. He adds that BigBand hasn't ruled out more acquisitions.

BigBand's credentials for an IPO include revenues that hit the "double-digit millions of dollars" in 2002 and have doubled every year since, Kenvin says. That would imply at least $40 million in revenues this year and a possible $80 million for 2005.

Of course, an IPO isn't the only option. Before the ADC deal, BigBand had been pegged as an acquisition candidate by Heavy Reading, the paid research arm of Light Reading. BigBand was attractive because it had established a good position in a hot market. Equipment for advanced cable services – as opposed to plain distribution infrastructure for cable – is one of the most promising areas for investment, according to the Heavy Reading report: Telecom Recovery Investment Opportunities (see Let's Make a Deal).

The ADC deal would seem to change that, however, as it creates more product overlap with possible cable-minded acquirers such as Motorola Inc. (NYSE: MOT). With Cuda, BigBand becomes one of five major CMTS players, alongside Motorola, Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), and Terayon Communication Systems Inc. (Nasdaq: TERN).

"There aren't that many companies left to buy them, really," says Scott Clavenna, chief analyst for Heavy Reading. A telecom outsider could acquire BigBand as an entrée to the cable space, but Clavenna thinks BigBand's emphasis on video, rather than transport, would be too far afield for most telecom firms' tastes.

The cable market hasn't seen as many startups as, say, telecom, because most MSO business goes to Motorola and Scientific-Atlanta Inc. (NYSE: SFA). "If anything, they're in need of new players," says Adi Kishore, an analyst tracking video services for Yankee Group.

So far, BigBand has provided video routing and some grooming functions, such as rate shaping or statistical multiplexing. In the long term, cable is likely to move to IP video, and the ADC pieces help BigBand in that area, Kishore says. "That's many years away, but if you look at some of the information that's now out about next-generation network infrastructure, IP is likely to play some role."

— Craig Matsumoto, Senior Editor, Light Reading

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