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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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metroman 12/5/2012 | 4:03:23 AM
re: Sources: Force10's Prepping Its IPO It would not suprise me if this story was a plant to try and motivate a quick sale of the company.

$60m revenues are not enough to sustain the level of funding that the company has on board, despite this number being credible.

Anyone with their wallet open (and an some market knowledge) will know that F10 are not a carrier ethernet player, rather they are in the grid computing/server clustering game. This has much lower exposure and probably a more limited client space even if some deals are substantial. (CERN is a good example)

The risk seems to be high by going public - everyone will see the numbers, their competition will take advantage by focussing on the level of debt and subsequent risk and they will need to continue to ramp revenues with a limited market.

I would be looking for a quick exit and suggesting an IPO might just make interested parties show their hand. It would be an easier aquisition if it could be done privately.

Metroman
FlaccidCCIE 12/5/2012 | 4:03:22 AM
re: Sources: Force10's Prepping Its IPO But the latency! And I have a budget that Force10 will never see. This brings us to the only logical conclusion, in that their ability to IPO solely rests on me.

FlaccidCCIE
DCITDave 12/5/2012 | 4:03:22 AM
re: Sources: Force10's Prepping Its IPO re: "It would not suprise me if this story was a plant to try and motivate a quick sale of the company."

If you think that little of our reporting ability, then don't read the site.

The two primary sources on this were in the financial community and not folks who worked for the company, so I feel pretty good about the info.

ph
Stevery 12/5/2012 | 4:03:22 AM
re: Sources: Force10's Prepping Its IPO The two primary sources on this were in the financial community

Now you have me curious: How did you verify that the two primary sources have no financial interest in seeing the company aquired?

I gotta admit, the market doesn't seem to be exactly salivating for an IPO like Force 10. (However, my info may well be lacking, in which case thanks for the article.)
metroman 12/5/2012 | 4:03:21 AM
re: Sources: Force10's Prepping Its IPO "If you think that little of our reporting ability, then don't read the site."

........touch a nerve did I?

I was simply offering a scenario for discussion. If you don't like having your articles discussed in an open forum, don't write for a site that asks for comment.

Metroman
DCITDave 12/5/2012 | 4:03:19 AM
re: Sources: Force10's Prepping Its IPO er: "How did you verify that the two primary sources have no financial interest in seeing the company aquired?"

I'm only saying that the folks who helped on this were in a position to know that the company is prepping an IPO. And that they weren't Force10 employees.

ph
metroman 12/5/2012 | 4:03:18 AM
re: Sources: Force10's Prepping Its IPO re: "touch a nerve did I"

Yes, you've shattered my confidence. I can't go on. Why can't everyone everywhere like me all the time?
-----------------------------------------------

Don't kid yourself that I was proud of putting one over on you. That really is not the case. I am not here to gloat or waste my time, I am here to discuss and learn. Perhaps you should do the same.

Now, do you have any comment on the content of my message or do you want to continue discussing this?

Metroman
DCITDave 12/5/2012 | 4:03:18 AM
re: Sources: Force10's Prepping Its IPO re: "touch a nerve did I"

Yes, you've shattered my confidence. I can't go on. Why can't everyone everywhere like me all the time?

ph
DCITDave 12/5/2012 | 4:03:17 AM
re: Sources: Force10's Prepping Its IPO re: "The risk seems to be high by going public - everyone will see the numbers, their competition will take advantage by focussing on the level of debt and subsequent risk and they will need to continue to ramp revenues with a limited market."

Have you read Vonage's S-1?

Seriously, I think Force10 will play up the fact that they sell to several markets -- not just carriers, or enterprises -- and that'll help some.

Beyond that, there's nothing more to say until we actually see the filing and see what kind of shape the company is in.
DCITDave 12/5/2012 | 4:03:17 AM
re: Sources: Force10's Prepping Its IPO re: "Now, do you have any comment on the content of my message or do you want to continue discussing this?"

What were we talking about anyway?

ph
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