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Optical/IP

IPG Files for IPO

Late last Friday (December 8) IPG Photonics Corp. (proposed Nasdaq: IPGP) filed for a $150 million IPO with the Securities and Exchange Commission.

In doing so, it's ignoring the no-nonsense mood of the stock market. But then, IPG appears to be a less risky proposition than some of the companies that have gone public (or have tried to) recently -- IPG is actually profitable (see IPO Nostalgia).

In fact, IPG has been making money since day one, it claims. According to its S-1 filing, the company managed a profit of $24,000 in the year ending December 31, 1997. And in the nine months ending September 2000, it increased profit to $1.5 million, thanks to registered sales of $32.5 million.

These numbers are testimony to the sound engineering that underpins IPG's products. The company boasts 30 PhDs on its staff (out of a total of 160 employees), who are working to develop and improve a range of high-power fiber lasers and amplifiers (see IPG Hides Its Light Under a Bushel).

Though IPG also sells lasers for industrial processes, such as laser welding, the company really hopes to take off by taking advantage of emerging telecom markets -- Raman amplification for long-haul networks, fiber in the access network, and optical wireless (free-space) systems.

According to the S-1 filing, IPG's multiple-output fiber amplifiers will make it possible to increase the number of users that can be accessed by hybrid cable TV networks. For optical wireless, IPG offers high-power amplifiers with automatic power adjustment. These are needed to maintain the optical power of the link at a constant level despite atmospheric disturbances such as fog and rain.

IPG's opportunity, however, is not without risk. The company cites TeraBeam Networks Inc., an optical wireless manufacturer, as its biggest customer (40.2 percent of sales). But it's early days for Terabeam, which has only a few installations under its belt. Terabeam's purchasing power clearly depends on winning more contracts -- and of that there's no guarantee (see The Truth About TeraBeam ).

IPG's second largest customer (19.6 per cent of sales) is Marconi Communications PLC (Nasdaq/London: MONI). Other customers include ADC Telecommunications Inc. (Nasdaq: ADCT), Alcatel SA (NYSE: ALA: Paris: CGEP:PA), Corvis Corp. (Nasdaq: CORV), JDS Uniphase Inc. (Nasdaq: JDSU), and Lucent Technologies Inc. (NYSE: LU).

But, as the S-1 points out: "None of these customers have any minimum purchase obligations, and may stop placing orders with us at any time... Our customers may purchase, and in several cases have purchased, fiber amplifiers and fiber lasers from other vendors, regardless of any forecast they may have previously provided to us."

There's one other worrying factor about IPG's customers. With the exception of TeraBeam, all of the customers listed above are also competitors and could use their considerable resources to out-maneuver the younger, smaller, company -- particularly as IPG says it hasn't had the resources to protect its intellectual property with patents.

The lead underwriter is Merrill Lynch Pierce Fenner & Smith Inc., part of Merrill Lynch & Co. Inc. (NYSE: MER). IPG has subsidiaries and operations in several countries: IPG Laser GmbH (Germany), IRE-POLUS Co. (Russia), IPG Fibertech Srl (Italy), IPG Fibre Optics Ltd. (U.K.), and IPG Inc. (Canada).

-- Pauline Rigby, senior editor, Light Reading http://www.lightreading.com

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