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Inrange IPO Heats Up

Light Reading
News Analysis
Light Reading
9/19/2000
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Salomon Smith Barney today increased the price range for shares of Inrange Technologies Corp. to $14-$16 from $12-$14. Shares of Inrange (Proposed Nasdaq symbol: INRG), the storage area-networking (SAN) subsidiary of SPX Corp. (NYSE: SPW), are expected to begin trading Friday.

This offering has been widely compared to EMC Corp.'s (NYSE: EMC) spinoff of McData Corp. (Nasdaq: MCDT), which went public in mid-August and now has a market capitalization of more than $8 billion. As with McData, investors have taken advantage of the "back door" into Inrange's IPO by loading up on shares of its parent, SPX.

It was hard to tell how the IPO plays into SPX's fortunes. SPX shares lost $14.38, or 9.52 percent, trading at $136.63 during late afternoon. On the same day, SPX also announced the acquisition of Jewett Inc., which may have affected trading in the stock.

Because valuations in the storage area networking (SAN) business are high, it makes sense for industrial products maker SPX to "unlock" the value of Inrange by spinning it off. The price of SPX shares has dropped in the past few days, but the stock is up some 30 percent compared with its price six months ago.

There have been plenty of back-door investment opportunities in the optical networking space in recent months. These have been risky plays, because the parent companies have been either tough to size up (see Investors Head for Luminent's Back Door) or they had volatile shares that reflected a loss of favor on Wall Street (see Osicom Investors Rebel).

Inrange doesn't appear to have either monkey on its back. In fact, the buzz surrounding the 7.7 million-share offering has been substantial. Renaissance Capital and WorldFinanceNet.com, have given the Inrange offering high marks all around. The increased price range indicates that the deal is heating up.

Analysts at Renaissance Capital, who picked Inrange as their IPO of the Week, cited the launch of Inrange's 64-port Fibre Channel switch as what may "put Inrange at the forefront of what could be the hottest area of the storage networking market." The leader in the market is Brocade Communications Systems Inc. (Nasdaq: BRCD) (see Brocade's Business Booms).

Unlike McData, Inrange has a diverse mix of customers. EMC still accounts for over 70 percent of McData's revenues. In the first six months of 2000, Inrange's top 20 customers accounted for 45 percent of its revenues. Its customers include AT&T (NYSE:T), Bell Atlantic, Cisco Systems Inc. (Nasdaq: CSCO), and Nortel Networks Corp. (NYSE/Toronto: NT).

Inrange brought in revenues of $98.4 million for the six months ending June 30, 2000, which was $4 million less than the year-ago period. Inrange cites foreign currency fluctuations and purchasing slowdowns related to Y2K for the revenue decline.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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