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Netgear Shares Soar After IPO

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LR Mobile News Analysis
Light Reading
7/31/2003

Home networking equipment manufacturer Netgear Inc.'s stock price surged today after an initial public offering that netted the company $98 million.

The Nortel Networks Corp. (NYSE/Toronto: NT) spinoff, which makes both wired and wireless LAN network gear aimed at the consumer and small business markets, sold 7 million shares valued at $14 each, in the offering on Wednesday night. These shares were up 25 percent at $17.45 in afternoon trading on the Nasdaq.

Lehman Brothers, Merrill Lynch & Co. Inc., and UBS Warburg served as underwriters for the IPO. The company is trading under the ticker symbol: NTGR.

In its prospectus, Netgear says it expects to use $20 million of the money raised to pay off an outstanding debt to Nortel. Furthermore, the company says it needs the money for working capital, to beef up sales, marketing, and R&D efforts, and may use the funds to finance potential acquisitions and joint ventures.

Netgear says in the document that it earned a net income of $1.6 million on revenues of $67.7 million for the quarter ended March 30, 2003.

In 2002, the company was ranked fourth in terms of small-office/home-office (SOHO) wireless LAN equipment market share with a 13 percent slice of the pie (see 802.11 WLAN Shipments Double). Linksys Group Inc., which was recently acquired by Cisco Systems Inc. (Nasdaq: CSCO), is the SOHO market leader, followed by Buffalo Technology (USA) Inc. and D-Link Systems Inc. (see Cisco Buying Linksys for $500M).

Netgear's market debut follows the successful IPO of business-oriented WLAN network access company iPass Inc. last week (see IPass May Start IPO Trend). However, analyst Chris Kozup doesn't think that this will mean a boom in IPOs for any old 802.11-related company (see WLAN: The Quiet Bubble?).

Both iPass and Netgear were able to post modest profits before going public, Kozup notes, and both have wide-ranging product lines that encompass wired and wireless elements. "I would see this as the fufillment of the corporate lifestyles of these companies," says Kozup.

Kozup expects that some of the enterprise-oriented equipment makers that have been talking about IPOs recently will need to work along similar lines before they can go public. "The day of the IPOs, pre-profitability with a standalone product, are probably long gone," Kozup says.

Wireless LAN switch startups Airespace Inc. and Trapeze Networks Inc. have each started to talk about the potential for an IPO since recently announcing their latest funding rounds (see Airespace Lands Another $22M and Trapeze Swings $34M).

— Dan "Corporate Lifestyle" Jones, Senior Editor, Unstrung

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