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Ixia's IPO Blooms

Light Reading
News Analysis
Light Reading
10/18/2000

Ixia (Nasdaq: XXIA), named for a plant in the iris family, is coming up roses during its stock market debut Wednesday. Ixia’s initial public offering priced at $13 per share, just above the original filing range of $10 to $12 set earlier by its underwriters.

By late afternoon, Ixia shares were up $11 to $24, an 86 percent gain.

Ixia's performance is being closely watched this week as its success will show that the optical IPO market hasn't been dampened as much as other technology sectors (see IPOs Will Test Market's Optical Optimism).

The company makes equipment that measures the speed and quality of packet transmission over both fiber optic and copper-line networks. As data makes a trip through a network, Ixia’s gear and software check to see what packets made it, when and in what order they arrived, and whether any bits were lost along the trip.

The company is three years old, and its already profitable, giving investors something to be excited about. “The question people are asking about Ixia is not whether it’s going to pan out, but what’s a fair price for all of this,” says Dan McCarthy, a market analyst with IPO.com. “As complicated as the optical networking sector is, investors can actually understand what Ixia does.”

Because of its early financial stability and because Ixia's was the first IPO in its market sector in a while, it's received positive comments from IPO handicappers across the board, including IPO.com, Morningstar.com, and IPOfinancial.com. Ixia didn't have as big a first day out as some this year, but it was encouraging, regardless (see Avici and Corvis Make Stunning Debuts).

However, there are some things investors should keep their eyes on. As previously mentioned, Ixia is a new outfit, and more than half its sales are to its top five customers. Its sales to Cisco Systems Inc. (Nasdaq: CSCO) alone accounted for 34 percent of its net revenues in the six months ended June 30, 2000.

As a percentage of its net revenues, Ixia’s gross margins were as high as 80 percent for that same six months. That’s an extremely impressive number, but it likely won’t be that high as the company gets older, IPO.com's McCarthy says.

Also, while Ixia competes with Agilent Technologies Inc. (NYSE: A), and Antara, its chief rival appears to be Netcom Systems, the Spirent PLC (London: SPT) subsidiary, a company from which many members of Ixia migrated. Ixia’s SEC filings mention that, in June, Netcom Systems sued Eran Karoly, Ixia’s vice president of marketing, for allegedly sharing trade secrets. Suits of this type, however, are becoming par for the course in the optical networking world.

Another thing that investors should know about Ixia is that the startup is very focused when compared to Agilent, a larger company with a broader selection of products. Of course, Ixia can't be everywhere at once, but its managers must make sure that a laser-like focus in one area doesn’t cause it to slip somewhere else.

“As much as everyone wants everything to come in one box, it’s just not going to happen,” says Duane Sword, the worldwide sales manager for Agilent’s advanced networks division. “Just testing for packets that have been sent across a network is fine, and Ixia’s good at that. But done in isolation it may not show the complete performance or integrity of a system.”

Ixia officials did not respond to calls for comment.

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

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