Doctor Huber's Revenge

In the optical networking market, nothing is surprising anymore. Companies without revenues can be bought for several billion in stock--or they can test the public market with hopes of even larger valuations.

The Corvis Corp. http://www.corvis.com IPO is expected to push the envelope of what the public markets are willing to pay for a development-stage company. It's looking to raise $400 million in a public offering that could yield something in the range of a $15 billion post-IPO public-market valuation, according to experts in the field.

Corvis Chairman and CEO David Huber might be looking at such a high valuation as the ultimate revenge in his rivalry with the company he founded, Ciena Corp. http://www.ciena.com (Nasdaq: CIEN). Huber, who holds a Ph.D. and has spent more than 18 years in the optical field, left Ciena after a dispute over the direction of the company. He now owns 32 percent of Corvis shares. He has not been shy about criticizing Ciena's leadership since leaving.

Those familiar with the deal believe that Corvis' post-IPO worth could fall in the range of $15 billion, if the public fervor for anything optical holds up over the next month. The reference point is ONI Systems Inc., http://www.oni.com (Nasdaq: ONI) which is currently trading at a value of $10 billion following its recent IPO. Nearly everyone that Light Reading spoke to at this week's Supercomm trade show, including venture capitalists familiar with the deal, said that Corvis "feels" bigger than ONI.

In addition to Huber's pedigree, the company is backed by venture firm Kleiner Perkins Caufield Byers (KPCB) http://www.kpcb.com and Cisco Systems Inc. http://www.cisco.com (Nasdaq: CSCO), adding a couple more gold-plated names behind the IPO.

The well-known networking venture capitalist Vinod Khosla, from Kleiner Perkins, occupies a Corvis board seat (see Vinod Khosla). And Cisco seems in little doubt that the IPO will be a smash. "What have you seen in the optical space that hasn't been a huge [IPO] success? Right now you could have an IPO for [a company called] 'Optical Bag Of Donuts' and it would go out big," says Carl Russo, group vice president of the optical networking group at Cisco.

If market conditions hold up, Corvis could very well challenge Ciena's market capitalization of $19 billion. But Ciena is on pace for on annual run-rate of close to $1 billion in revenues. Corvis' revenues? Zero. That hasn't stopped Corvis from launching a splashy marketing campaign. Nearly everywhere visitors went at Supercomm, the Corvis image was there, plastered on items as diverse as subway billboards and notebooks.

Corvis is best known for its work on all-optical switches, but its biggest strength could actually be its long-distance transmission technology, which allegedly will allow its equipment to transmit over distances of 3,000 km without electrical regeneration of wavelengths. But Corvis has yet to sell one product. It's also depending on on two other companies it has purchased, also with no revenues: Algety and Baylight Networks.

The best way to sum up the situation is to read the Risk Statements in the Corvis S-1: "Our early stage of development makes it difficult to evaluate our business and prospects... We began shipping field trial systems during the second quarter of 2000. We do not expect to recognize revenue prior to successful completion of these field trials of our products."

A preliminary Corvis S-1 is still being reveiewed and no date has been set by Credit Suisse First Boston http://www.csfb.com, the lead underwriters for the IPO, but the IPO is expected to come sometime in the next month.

--R. Scott Raynovich, Executive Editor, and Stephen Saunders, US Editor, Light Reading (http://www.lightreading.com)
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