NetLogic Sets IPO Terms
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