Optical IPOs Hang at the Gate

It's tough to track the market's mood these days. Up one day, down the next. So several optical startups that have filed for IPOs this fall may be forgiven if they're getting cold feet.

The following optical vendors recently registered with the U.S. Securities and Exchange Commission to go public:

  • Cidra Corp. (proposed Nasdaq: CIDC) -- DWDM components -- filed for a $150 million offering (number of shares unspecified) in an S-1 on October 11
  • OMM Inc. (proposed Nasdaq: OMMI) -- photonic subsystems -- filed for a $124.2 million offering of 9 million shares in an S-1/A on October 25
  • Tellium Inc. (proposed Nasdaq: TELM) -- optical switches -- filed for a $262.5 million offering of 17.5 million shares in an S-1/A on November 7
  • Wavesplitter Technologies Inc. (proposed Nasdaq: WVSP) -- lightguides and circuit components -- filed to offer 10 million shares (total aggregate unspecified) at $13 to $15 per share in an S-1/A on November 13

    So far, none of the above companies have taken further steps to market. OMM and Tellium say that's business as usual. "Why are you calling? There's been no change," said Tellium spokesperson Mike Deshaies yesterday. Subsequently, he told Light Reading that he was actually unable to verify anything with the vendor's financial folk. "We're in a quiet period," he says.

    OMM also says it's on track. "You ask if we postponed our offering, but we never had a scheduled date yet to postpone," says OMM CFO Phil Chapman. He says the company's still in the process of exchanging information with the SEC and that a roadshow is planned soon.

    Neither Cidra nor Wavesplitter returned calls.

    It's tough to tell whether market conditions are holding up any of these vendors, but if they are it's understandable. "The IPO market can only be described as piss-poor right now," says Fred McClimans, managing director at McClimans Technology Partners. "There's so much volatility, the market is so unpredictable, that most firms are extremely hesitant to test the waters. And those who haven't started down the IPO path are afraid to, since pulling back will be viewed as a sign of weakness."

    The insecurity seemed to surface in early October, and at first it appeared as if the market were just conjuring up trouble for itself (see Market Sell-Off Clips Optics). But as the weeks progressed, and one big company after another seemed to slip expectations, it became clear other forces were at work. Nortel Networks Corp. (NYSE/Toronto: NT) reported lower-than-expected quarterly earnings, citing double ordering by customers afraid of running short on components and products (see Nortel's Fright Night). Bad news followed for Cisco Systems Inc. (Nasdaq: CSCO) when Tim Luke of Lehman Brothers reduced its share price estimates (see Cisco Caught by Capex Concerns).

    Although much of the reaction to these events may be overblown (see Optical Stocks: Panic? Schmanic! and Nortel's Optical Halloween), it's clear that the days when an optical company could expect to triple its value in one day based on little more than a promise are gone. Today's crop of optical companies can't expect the same treatment the market gave to earlier debuts, such as those of Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) and Corvis Corp. (Nasdaq: CORV) (see Avici and Corvis Make Stunning Debuts).

    Companies that decide to take the plunge into public markets must gear up to meet the unpredictable forces of a highly volatile market head on -- and anticipate results that may be just as unpredictable. Consider the wildly different situations encountered by two optical vendors that entered the market in November: On the third, the share price of Optical Communication Products Inc. (Nasdaq: OCPI), a components spinoff of Furukawa Electric Co. Ltd., rose over 60 percent in its first day of trading (see OCPI Shares Soar After IPO). In contrast, when Luminent Inc. (Nasdaq LMNE) went out on the tenth, its shares only rose by just over one percent in first-day trading (see Luminent's Dull Debut).

    These up and down results could be discouraging, but analysts warn investors not to ride the rollercoaster of public opinion. "We have to look at the last two years as a statistical aberration, an extraordinary period," says Mark Langley, director at Epoch Partners. A lot of new products coming to market raised expectations unreasonably high, he says, but the market correction shouldn't lead investors to lose sight of the fact that optical IPOs are still very attractive. "Overall, optical is still a leader."

    -- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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