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Atheros IPO Raises All Boats

Wireless LAN chip designer Atheros Communications Inc. today had a successful initial public offering and may be on the verge of a much deeper relationship with 802.11 equipment titan Cisco Systems Inc. (Nasdaq: CSCO), Unstrung has learnt.

For the IPO, Atheros priced 9 million of its shares at an initial price of $14 each. The firm is trading on the Nasdaq under the ticker symbol ATHR. The opening price on the stock was $18.75, although this fell to $17.60 at the close. Despite this, the stock ended up 25.71 percent up on its offering price in a day when most of the rest of the market dropped.

In the company's S-1 IPO registration document, filed with the Securities and Exchange Commission (SEC), Atheros says that it made revenues of $87 million for 2003. Today's offering of $800 million values the company at nearly ten times that amount. Although in the document the company warns that its growth will not be as spectular as it has been over the last couple of years. "Our revenue has increased from $1.8 million in 2001, to $22.2 million in 2002, and to $87.4 million in 2003. We do not expect similar revenue growth rates in future periods," the company writes.

There has been a lot of interest in the Atheros IPO -- in the wireless world and farther afield -- since the company has managed to carve a niche for itself delivering high-performance, multimode 802.11 chipsets for both the consumer and enterprise markets, despite fierce competition from more established players like Broadcom Corp. (Nasdaq: BRCM) and Intel Corp. (Nasdaq: INTC).

The firm's IPO is also seen as a market barometer by WLAN startups like Airespace Inc., Aruba Wireless Networks, and others that hope to go public in their turn. Atheros is regarded as the company that could open the way for a number of 802.11-related public offerings either later this year or in 2005.

"We're watching it very, very closely," says David Callisch, communications director at Aruba. "If they do well it is a good sign for us."

Atheros's chips are currently used in WiFi kit for the home from the likes of Netgear Inc. (Nasdaq: NTGR) and D-Link Systems Inc.; in most of the equipment in the emerging wireless LAN switch sectors; and in laptops from Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and others.

Now the chip company may be forming a deeper relationship with the number one supplier of consumer and corporate wireless LAN kit: Cisco.

Two independent and reliable sources tell Unstrung that Cisco is looking at using Atheros's chips in products for the small business and corporate market.

Cisco is said to be developing a mid-range access point called "Aerolink" that is "based entirely on Atheros silicon" a source tells us. The AP will be aimed at the small and medium-sized business market, the source says, and could be intended as competition for the new breed of stripped down (a.k.a. "skinny" or "dumb") designed for use with WLAN switching gear -- although it is likely that the product will actually be a full access point that can operate independently of any separate management equipment, he says.

Meanwhile, a separate source also tells us that Cisco has been looking at using Atheros silicon in its enterprise access points since the firm stopped in-house development of its own Radiata chipsets.

A spokeswoman for Cisco confirmed that the company has stopped developing its own chipsets but wouldn't comment on which company -- or companies -- it now plans to use to meet its silicon needs.

"Cisco will cease internal development of Wi-Fi chipsets as the market for these chipsets has expanded dramatically over the last several years," wrote the spokeswomnan in an email reply to questions. "Our current Cisco Aironet products are not impacted by this decision. It is our policy not to comment on future Wi-Fi silicon projects or the Wi-Fi silicon suppliers we'll partner with." A so-called spokesman for Atheros also declined to comment.

Cisco already uses Atheros silicon for a couple of its wireless LAN client products. You can see a list of Atheros's announced customer deals here.

Yet, despite Atheros's already impressive customer list, more Cisco deals would still be big news for the chipmaker. Various analysts that Unstrung spoke to all noted that a good partnership with Cisco is enough to sustain a component supplier in this market.

— Dan Jones, Site Editor, Unstrung

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