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Optical/IP Networks

All Eyes on Riverstone IPO

The networking industry is awaiting the outcome of Riverstone Networks's IPO, scheduled for Friday, with something akin to breathless anticipation.

Riverstone (proposed Nasdaq symbol: RSTN) is the first outfit to essay an entry into the public market since Nasdaq rolled and burned last year (see Riverstone Readies Its IPO and Riverstone Sets IPO Pricing Date). A strong performance by the Cabletron spinoff could open the path for other optical networking companies to follow suit. An srticle in the Wall Street Journal today predicted that Unisphere would go public in late March.

Conversely, a weak performance might damage those companies' IPO prospects yet further. That would spell big problems for a slew of optical startups that had anticipated taking their companies public last year and are now stuck at the gate, running short of funds.

What do Riverstone's prospects look like? "Riverstone is the right company to show some leadership. They should do fairly well," says Thomas Alexander, president and CEO of LuxN Inc., a metro optical networking startup. "They're not a regular startup. They have experienced leadership, a customer base, real products, and substantial revenues. They could open the gate for others," he adds.

Alexander predicts that if Riverstone rips one to right field, Zhone Technologies Inc. could follow it (see Zhone Files for IPO). And after that? "Quantum Bridge, maybe." (See Quantum Bridge Aims for IPO.)

Another company gearing up to brave the market is the "Son of Siemens" outfit, Unisphere Networks Inc. (Nasdaq: UNSP). Like Riverstone, it's not a regular-Joe startup. Siemens will own more than 80 percent of the company once it goes public. The German parent's deep pockets have enabled Unisphere to keep plodding towards its public market goal, despite the fact that it initially registered for an IPO way back in August (see Unisphere Registers For IPO). An article in the Wall Street Journal today, Thursday, predicted that Unisphere would hit the Street next month.

LuxN's own IPO plans have been put on hold by Nasdaq nihilism, Alexander says. "To go public now you need a $10 million quarter and to show that you will be profitable within two quarters of the IPO date."

LuxN's chances of meeting those milestones in this quarter, or the one after, depend on the fortunes of its potential customers, he says. "On the one hand you have all these [service providers] having trouble -- FiberStreet, Allied Riser [Nasdaq: ARCC], Urban Media, and so on. But on the other hand, you have Cogent, Yipes, Telseon, GiantLoop, and IntelliSpace, who have lots of money still." LuxN says it will close a $52 million E round in March, to keep it going until its IPO. Unusually, it managed to negotiate a "flat round" -- one where it managed to retain the same valuation as its previous round. Other companies are having to settle for "down rounds" -- where the company takes money at a lower valuation than at its previous round. And some are ending up with "doh!" rounds -- where they can't get any money at all.

Newly formed optical networking companies -- ones that are nowhere near an IPO -- face an even harsher reality. Already several of them have tripped, fallen, and seem unlikely to regain their feet (see Shutdowns Send Dark Message). -- Stephen Saunders, US editor, Light Reading http://www.lightreading.com

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