Life After Corvis

So does that mean Corvis must now fill up the world's highways with optical networking products to maintain its stock price? Well, yes. To live up to the expectations that have been set, Corvis must outgun established optical players such as Nortel Networks Inc. (NYSE, TSE: NT), Lucent Technologies Inc. (NYSE: LU), Ciena, and Cisco Systems Inc. (Nasdaq: CSCO), as well as startup competitors like Sycamore Networks Inc. (Nasdaq: SCMR), in wiring the fiber optic highways with its optical routing and transport products. After all: Its valuation now implies that it's the leader in the space.

Experienced financial analysts say such IPO activity is not unprecedented. Each year, another landmark IPO sets the stage for heated debate about valuation on Wall Street, only to be outdone in subsequent years.

"It seems aggressive," says Tim Savageaux, senior analyst with W.R. Hambrecht & Co., speaking of the performance of Corvis stock. "Certain markets get into stages in which the public markets don't distinguish between nuances of companies." Savageaux notes that excitement over IPOs in emerging markets is nothing new: Ciena and Sycamore preceded Corvis with their own blockbuster IPOs. Sycamore is currently trading below the levels it reached following its IPO, even though it has pleased Wall Street by surpassing the $100 million revenue mark in less than a year. Like Corvis, it had no revenues on the day it went public.

Ciena, for its part, was once the star IPO of optical networking. In 1997 Ciena came out with a valuation that seemed ludicrous to many. And the stock climbed sky-high, until the company missed a quarter in 1998, causing shares to collapse to an all-time low. Since then, Ciena has posted renewed growth, and the stock has rebounded, once again flirting with an all-time high.

"There's a lot of animal spirits that will be replaced with value analysis," says Savageaux.

And Corvis has clearly raised the bar: It must now financially outperform both Sycamore and Ciena to support the expectations that have been set. Important analytical information such as quarterly results, customer purchases, and details about the technology, have yet to emerge.

"The models used to value companies don't apply quite well [to Corvis] because there is assymetric information," says Babu Ranganathan, a general partner with Apex Venture Partners. "It's not a multiple of revenue, it's a multiple of concept. It depends on how big the concept is." Apparently, most investors seem to think the Corvis concept is the biggest in networking history.

-- R. Scott Raynovich, executive editor, Light Reading (http://www.lightreading.com)
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