NetLogic Sets IPO Terms

Chipmaker NetLogic Microsystems Inc. could raise more than $80 million with its planned IPO, according to documents filed yesterday with the Securities and Exchange Commission (SEC).

NetLogic, which makes search-engine chips for functions such as IP routing lookups, plans to sell 5.775 million shares at a price of $12 to $14 apiece, according to yesterday's S-1 filing. That makes the IPO worth $69.3 million to $80.85 million.

The numbers seem reasonable, given expectations for a bump in NetLogic revenues this year. Speaking in April, before the terms of the IPO were set, analyst Jag Bolaria of The Linley Group noted that a run rate of $40 million in annual revenues would put a $100 million IPO within reach (see NetLogic Files for IPO).

For the quarter ended in March, NetLogic reported $8.3 million in revenues, for a run rate of around $33 million. The surge in revenues comes from Cisco Systems Inc. (Nasdaq: CSCO), which represented two thirds of NetLogic's business last quarter, according to the S-1.

NetLogic faces some ongoing difficulties, however. The company's losses have grown every year, to $32 million in 2003. And its market isn't large, measuring $95 million last year, according to Bolaria (see Search Engine Chips Heat Up). Moreover, the market for merchant search-engine chips is dominated by Cisco, a factor that helped Integrated Device Technology Inc. (IDT) (Nasdaq: IDTI) and Cypress Semiconductor Corp. (NYSE: CY) overpower the startup competition by falling into Cisco's good graces.

NetLogic has strong ties to IDT, its top competitor. Both companies were founded by Norman Godinho, and former IDT chief executive Leonard Perham is NetLogic's chairman. IDT even picked up an 11.2 percent stake in NetLogic in exchange for loaning the startup $30 million in June 2002, according to the S-1. IDT will divest its entire stake, about 1.5 million shares, in the IPO. IDT declined to comment on the matter.

Underwriters for the IPO will include lead Merrill Lynch & Co. Inc., A.G. Edwards, Lehman Brothers, and UBS AG.

— Craig Matsumoto, Senior Editor, Light Reading

optiplayer 12/5/2012 | 1:35:10 AM
re: NetLogic Sets IPO Terms In order to evaluate if an $80M IPO is reasonable we need to know what percentage of the company is being offered for sale which was not provided. If its 20% then that implies a market cap of $400M which seems kinda bubblish for a company with a run rate of less that $40M and piles of red ink...
materialgirl 12/5/2012 | 1:35:10 AM
re: NetLogic Sets IPO Terms Your 20% estimate is typically accurate. The IDT deal smells, however. They "loan" what is clearly a "related entity" $30M in 02, then sell out for $18M (1.5M shares times $12) in O4. In order to accept a 40% haircut, they must think this thing is going to zero. Otherwise, they would wait a year to see if they could get paid back in full.
c_headed 12/5/2012 | 1:35:08 AM
re: NetLogic Sets IPO Terms The information is in the prospectus summary. If you take a look, the number of shares being offering to the public is 3.6 million at $13/share (mid-point or pricing range), that's approximately $46.8 million. The total number of shares outstanding after the offering is 18.8 million. So you're getting 3.6/18.8 or approx. 20% of the company for $46.8 mil. That implies a market cap of $244 mil. That's 6.0x sales. Still bubbly.
OptixCal 12/5/2012 | 1:34:52 AM
re: NetLogic Sets IPO Terms So I guess the message is wait till the stock tannks then sweep up the "filings"?
geof hollingsworth 12/5/2012 | 1:34:45 AM
re: NetLogic Sets IPO Terms Bet that comes as a surprise to George Hwang.

This deal makes no sense to me. Have you looked at the gross margins-it is no wonder they lose money. And Cisco as the major customer? Yeah, they have always been known for their generousity toward component suppliers so I am sure the margins will be improving soon.

What are we all missing?
materialgirl 12/5/2012 | 1:34:39 AM
re: NetLogic Sets IPO Terms The message is aviod this IPO. A bubble deal for sure, judging from the actions of insiders. After it tanks, we can revisit the situation. Its value would depend on how far it tanks, what CSCO is doing with them, and if they can find another customer like CSCO, which may be impossible given CSCO's market dominance.
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