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Optical/IP

Force10 IPO Still Hanging

So... What about that IPO?

A year after openly discussing a public offering -- even handing out revenue figures, something a private company doesn't have to do -- Force10 Networks Inc. is still sitting on the sidelines, still privately held, still awaiting its chance to look goofy on TV ringing the Nasdaq bell.

Company officials won't talk. VP of marketing Andrew Feldman notes, without elaborating, that an IPO is still in the plan.

But when? A year ago, Force10 collected $40 million in what was supposed to be its final round of funding. Board member Dick Kramlich of New Enterprise Associates (NEA) said last year that Force10 was expecting $60 million in revenues for the year, and based on available research, the company appears on pace to break $100 million this year. (See Force10 Revs Revenues.)

One source from the financial community says Force10 was targeting a second-quarter IPO, and others told Light Reading that the paperwork was being prepared in March, with Morgan Stanley purportedly chosen as lead underwriter. (See Sources: Force10's Prepping Its IPO.) Apparently, something has held up the process.

One instinct would be to assume business has slipped, but the numbers appear to shoot down that theory.

The Dell'Oro Group listed Force10 as No. 2 in the 10-Gbit/s Ethernet switching market during the second quarter -- behind Cisco Systems Inc. (Nasdaq: CSCO), of course. Synergy Research Group Inc. lists Force10's second-quarter revenues at $29.1 million, up 37 percent from the previous quarter and nearly double the company's second-quarter 2005 revenues.

Other conditions aren't so sanguine, however, as the stock market turned sour after a strong spring. In communications chips, conditions were so soggy that Wintegra Inc. delayed a June IPO at the last minute; the company has since put its IPO on hold indefinitely. (See Net Processors Await an IPO.)

Most of those that have gone public have been disappointed, even if they're not Vonage Holdings Corp. (NYSE: VG).

Take the case of Infineon Technologies AG (NYSE/Frankfurt: IFX), which had to water down the IPO of Qimonda AG, its former memory-products division. Qimonda went public earlier this month, but the number of shares sold was cut by one-third to 42 million, and the price got slashed to $13 per share from a proposed minimum of $16. All told, the IPO raised $546 million instead of an expected $1.1 billion.

Another challenge IPOs face is the increased regulatory scrutiny under the new Sarbanes-Oxley rules. Speaking about IPOs in general, Bill Tai, a partner with Charles River Ventures , notes that "the filter to go public has gotten a lot tougher since the bubble."

Some sources suggest this is exactly what has slowed Force10's progress. Wall Street is griping about Sarbanes Oxley in general, with some saying it's driving firms to go public overseas on AIM, the London Stock Exchange 's trading vehicle for small companies worldwide.

Finally, it's possible -- albeit really unlikely -- that Force10 officials just like seeing their name atop Light Reading's Top Ten Private Companies. Maybe they're even trying to set a record for the longest time spent on the list. Fat chance. They'll have to bump off Calix Inc. (NYSE: CALX) first. (See LR Shakes Up Private Companies List.)

— Craig Matsumoto, Senior Editor, Light Reading

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Hanover_Fist 12/5/2012 | 3:43:32 AM
re: Force10 IPO Still Hanging doomsday scenario...investment bankers/corporate execs on the roadshow "sell" strike price; stock price closes below strike price and never recovers; venture companies don't recover initial investment; stock holders disappointed; fund managers unhappy - they bought into the roadshow promises; further stock sell off; further depressed stock price; pre-IPO employees purchase scuba gear to find their underwater options; everyone listens to loud flushing sound and watches money swirl down the drain...
Alpine 12/5/2012 | 3:43:31 AM
re: Force10 IPO Still Hanging Word on the street is that they are circulating a private placement to raise capital at about a $400M pre money valuation.

Also there are two big factors working against them this year. First the ipo market sucks and second the calendar. You pretty much have to finish an ipo offering before mid dec due to the holidays. If they haven't filed a s-1 in the next 60 days they probably couldn't get an offering done this year. It takes about 2-3 months to get an offering done from the time you file an s-1 depending on the sec review process.

finally word was part of the delay was caused by needing to restate the books to comply with SOX and the fact that they needed to hire a new cfo.
Honestly 12/5/2012 | 3:43:29 AM
re: Force10 IPO Still Hanging F10 had announced a high performance, low cost 10 Gig Ethernet switch about two months ago. The switch is oem'ed from Fulcrum Micro, a Los Angeles based start-up. The product is not GA yet and quantity may be limited for awhile. This may not be of impact on the IPO delay at all.

F10, However is not an easy sell to investors.

Morgan Stanly is also quit picky on the quality of its IPO's and F10 will need to be closer to profitability with an aggressive sequential growth Story. Don't be shocked If this doesn't go until Q2 07, or they get bought.
Pete Baldwin 12/5/2012 | 3:43:29 AM
re: Force10 IPO Still Hanging Interesting that they would need even more money to tide them over ... It is a big company, though, and they must have an impressive burn rate going.
my5cents 12/5/2012 | 3:43:28 AM
re: Force10 IPO Still Hanging i hear that Force 10 is low on cash and will get bought out for 300-400M by Nortel
BlueFox 12/5/2012 | 3:43:28 AM
re: Force10 IPO Still Hanging Do they have much engineering/QA outsourced to India/China? If so that probably accounts for any product delays. Save a few dollars on salaries, and lose it on delays and quality.
valleyguy 12/5/2012 | 3:43:25 AM
re: Force10 IPO Still Hanging That would save Nortel, but only if they decided to do other things for enterprise like WLAN. I hear they are focused on a WLAN startup now that they are cleaning up the balance sheet. F10 would not sell for less than $500M, probably more like 700M now (Unisphere=same revenues, less investment in technology, smaller market opportunity).

But knowing Nortel, they'll find a way to waste the opportunity that is right in front of them (lots of change in the enterprise = new opportunity to re-enter).

Maybe Terrence and Phillip will someday take over Nortel. Blame Canada!
Scott Raynovich 12/5/2012 | 3:43:25 AM
re: Force10 IPO Still Hanging >doomsday scenario...

you mean like Vonage?
Honestly 12/5/2012 | 3:43:21 AM
re: Force10 IPO Still Hanging Management and VC's have said, 1 Billion, or no go. If revenue #'s have been accurate they can hang for awhile.
strungup 12/5/2012 | 3:43:21 AM
re: Force10 IPO Still Hanging And you would be right.

They still have to fully finish their restatements. With their history of turning up more discrepencies everytime they go in there, they're hardly in a position to spend big bucks for another startup.



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