Optical/IP Networks

Sources: Force10's Prepping Its IPO

Force10 Networks Inc. is just a few days away from filing its S-1 paperwork with the SEC and declaring to the world that it wants to be a public company, sources familiar with the situation say.

What's not yet clear is how big an offering Force10 will make, but sources say the company expects to file papers in less than a month and the lead underwriter is expected to be Morgan Stanley .

Force10 was called for this story but declined to comment.

The Ethernet switching firm is hoping to ride the carrier Ethernet buzz all the way to the bank, say Wall Street sources. The company has revenues somewhere north of $60 million and has been rumored to be on the block in recent years. Sources close to the company say an IPO looks to be a more likely exit, given the acquisition price it would need to fetch to pay dividends on the $284 million in venture funding it has raised in its lifetime. (See Force10 Takes $40M, Talks IPO and LR Names Top Ten Privates.)

Sources expect that the company will tout its wins at more cutting-edge communications companies –- like Google (Nasdaq: GOOG) and Vonage Holdings Corp. (NYSE: VG) –- as proof that it can offer superior technology at a competitive cost, versus established router and switch vendors like Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (NYSE: JNPR).

"Google is using Force10 Ethernet switches at its core and Juniper routers at the edge," says one financial analyst who watches the Ethernet switching and routing market. "We definitely expect Force10 to play up the fact that they beat Juniper in the core." (See Force10 Gets Dense.)

Others expect the company to play up the claim that its big switches offer 90 percent of Juniper's core routing functionality at about 15 percent of the cost.

And it doesn't hurt that Force10 was picked by Light Reading last year as a Leading Lights winner in the category of Top M&A or IPO Candidate, Private Company. (See LR Names 2005 Leading Lights Winners.)

Analysts agree the carrier Ethernet market is experiencing a surge that could help Force10 make its pitch to investors.

"Chief amongst the drivers for broadband investment is the advent of IPTV services, a potential portfolio of IP-based, TV-centric services which could include broadcast TV, video-on-demand, HDTV, networked PVR, online gaming, music download, video telephony, and home security services," according to Infonetics Research Inc. 's November 2005 report on the Ethernet switch market.

Likewise, Heavy Reading projects that global carrier Ethernet switching and routing (CESR) revenues will break the $1 billion mark in 2006. The firm cites more network activity related to enterprise Ethernet services and residential triple-play, IPTV, and video-on-demand services as the catalysts for the CESR market. And, by 2008, the CESR market will hit revenues of $2.2 billion, Heavy Reading says.

Of course, carrier-related business is only about one third of Force10's sales. The rest of its business is split evenly between research networks, data centers, and enterprise customers. And competition is tough all around as Force10 squares off against Cisco, Juniper, Extreme Networks Inc. (Nasdaq: EXTR), Nortel Networks Ltd. , Foundry Networks Inc. (Nasdaq: FDRY), Huawei Technologies Co. Ltd. , and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), to name a few.

— Phil Harvey, News Editor, Light Reading

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