Luminent Closes in on IPO

Credit Suisse First Boston has set initial pricing at $13 to $15 for the upcoming Luminent Inc. (proposed Nasdaq: LUMN) initial public offering. The company, which is being spun out of MRV Communications, hasn’t yet set a final pricing date. The proposed sale of 12 million shares is expected to raise about $168 million.

Luminent, which manufactures active and passive optical components for metropolitan and access equipment, has two things going for it.

First, it has actual customers, the two biggest of which are Marconi Communications PLC (London: MNI) and Cisco Systems Inc. (Nasdaq:CSCO). Its revenue from these and other customers grew 59 percent from $38.6 million in 1998 to $65.2 million in 1999.

Second, Luminent is focused on a hot area of the optical component market and has a good breadth of products among its offerings, says Stephen Montgomery president of Electronicast Corp., which has followed the optical component market for nearly 20 years. The market forecast for components in the access market in North America alone was $900 million in 1999 and is expected to grow to $3 billion by 2004 and $10.4 billion by 2009, according to an Electronicast study.

“Our outlook for smaller companies like Luminent is very good,” says Montgomery. “System vendors need multiple suppliers -- besides, companies like Lucent won’t sell to everybody, so there is plenty of opportunity for them.”

But there is a downside. Despite its growth and the market segment's potential, the company is still stating a loss, which has grown from $3.5 million in 1998 to $4.1 million in 1999. And due to two recent acquisitions, that loss has jumped up to $10 million in the last six months.

The company has also raised some risk factors in its S-1, which it filed with the Securities and Exchange Commission in July (see Luminent IPO ). For one, it is entering a highly competitive market, joining vendors -- like Agilent Technologies Inc. (NYSE: A), Corning Inc. (NYSE: GLW), JDS Uniphase Inc. (Nasdaq: JDSU), and Lucent Technologies Inc. (NYSE: LU) -- which are all much bigger than Luminent and, in the short term, will have more cash to pour into sales and manufacturing efforts.

There are other potential risks, as well. The company has already been threatened by patent infringement lawsuits. Rockwell Corp. (NYSE: ROK) and Ortel Communications, which has since been acquired by Lucent, have both written letters to Luminent accusing the company of infringing on their patents, according to the S-1. The company is currently investigating these issues, but admits that expensive legal battles and potentially negative outcomes could have devastating effects on the company.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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