Two industry sources, one with ties to Wall Street, say Calix is set to file its S-1 paperwork with the Securities and Exchange Commission (SEC) , within the next few weeks.
This certainly isn't a shock. Calix is venture-backed, successful, and in need of an exit if its investors are ever to see a profit. It's thought to be too expensive a company for any large sized equipment vendor to buy right now. But it does have a healthy, steady business and may be looking to the public markets to add to its arsenal.
Additionally, Calix has been running itself like a public company from the inside for the last few years, so IPO talk of this sort has come and gone before.
One analyst, who asked to not to be named, estimates that a Calix IPO could value the company at $300 million to $500 million, based on the assumption that Calix forecasts 2008 sales at around $100 million.
"Access companies tend to have low valuations," says the analyst, "but since [Calix is] an innovative company and has a pure-play technology, on the high end they could be in the range of two to three times 2008 sales, with the potential for half a billion dollars."
Calix has long been regarded as a potential IPO candidate, and currently holds the No. 2 position on Light Reading's Top Ten Private Companies, our most recent -- and now somewhat dated -- list, which ranks the hottest IPO or acquisition prospects in the telecom industry.
Calix achieved that position by aggressively tuning up its broadband product portfolio in early 2006, adding Ethernet functionality, and improving its passive optical network (PON) story with the acquisition of OSI. (See Calix Goes to the Node and Calix Completes OSI Buy.)
Since then, Calix has announced a number of customer wins and, according to one research firm, was second only to Alcatel-Lucent (NYSE: ALU) in numbers of DSL ports shipped in the fourth quarter of last year. (See Calix Wins Canadian Deals, Calix Wins at Oneida, Calix Wins in Trinidad, Calix Picks Up FDN Deal, and Calix Claims #2.)
That strong position comes from consistent success with Tier 2 and Tier 3 carriers in North America, where it boasts more than 400 service provider customers and claims to serve 12 of the top 20 U.S. incumbent local exchange carriers (ILECs).
However, that market segment has a limited value. According to one analyst, the North American broadband access market opportunity will be about $800 million in 2007, "and the non-RBOC market is about 30 percent of that, or about $250 million," he estimates.
As a result, Calix's growth opportunities are limited unless it can break into the Tier 1 telco market or expand internationally. Calix "may have a good growth forecast for the next year or two, but it needs to break into Verizon Communications Inc. (NYSE: VZ) or AT&T Inc. (NYSE: T) or go overseas," says a terribly publicity-shy Wall Street analyst.
Morgan Keegan analyst Simon Leopold calls this the "AFC playbook." Before being acquired by Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), Leopold notes, Advanced Fibre Communications began by selling to small, individual carriers.
"AFC won fiber-to-the-home business with Verizon and realized they bit off more than they could chew," Leopold says. "Doing business with Verizon and AT&T is a big leap" from the Tier 2 or Tier 3 carriers AFC had been dealing with.
Even so, Leopold says going public won't dramatically improve Calix's prospects with Tier 1 carriers. He points out that if a company can demonstrate it can compete in the Tier 1 space, it doesn't matter whether it is public or private.
"I'm not sure if an IPO will help Calix" compete for Tier 1 business, Leopold says, but he offers an alternative reason for an IPO: "My sense is, the main reason for them to go public is if they need equity to make acquisitions."
Calix declined to comment for this story, but Calix's CEO, Carl "Soup's On" Russo, has addressed the topic earlier, on LRTV. (See Full Transcript of LRTV’s Interview With Carl Russo, CEO, Calix .) In a 2005 interview, Russo listed a lot of disadvantages to being a public company, but acknowledged that Calix would be ready to go public when the time is right:
The first is, if you’re public, your numbers are in public, your business model is public. I love quarterly reports because you get a chance to see how your competitors are doing. I’d much prefer them not to see how we’re doing. It is seriously a burden. But, we’re actually very tightly run financially and as you pointed out, I think, on Light Reading, we have a compliance officer here, and so we’re putting ourselves in a position that if we chose to go public to go public. But there’s no reason to go public today.
In a BusinessWeek interview that same year, Russo was a bit more concise: "The only thing that would cause me to go public is if we wanted to go do an acquisition. I don't know why else I'd do it."
— Ryan Lawler, Reporter, Light Reading