Switch Startups Mull IPOs

Two of the key startups in the wireless LAN switch market -- Airespace Inc. and Aruba Wireless Networks -- say that Atheros Communications Inc.'s (Nasdaq: ATHR) successful IPO will help their plans to go public in 2005.

But rival startup Trapeze Networks Inc. has backed away from previous bullish statements about its ability to float public stock any time soon.

Both Airespace and Aruba say that Atheros's IPO is important because it helps the market perception of the wireless LAN sector, especially following similar offerings by WLAN corporate network connection provider iPass Inc. (Nasdaq: IPAS) and SOHO WiFi kit maker Netgear Inc. (Nasdaq: NTGR) (see IPass May Start IPO Trend and Netgear Gets $98M From IPO)

"It helps to validate the space," says Alan Cohen, VP of marketing at Airespace. "It clearly changes how Wall Street regards this entire market." He says that an Airespace IPO in "early 2005" is "a strong possibility."

David Callisch, the director of communications at Aruba, says that Aruba is also looking at a public offering in 2005, depending on market conditions. Callisch has a concept that we at Unstrung like to call the lemming theory of IPOs.

"It was like back in the days with Gigabit Ethernet, there was us [Alteon] and Extreme and [ed note: David reels off a huge list of companies that we won't bore you with]... Extreme was the first one to go, their red herring [prospectus offering] price was something like $19 and they closed the day at $45. Once we saw that, everybody was ready to go."

Atheros's performance was not quite that stellar, but on the opening day the stock finished trading up 25.71 percent from the offering price of $14, which was regarded as a solid performance on a day when the rest of the Nasdaq was fairly downbeat (see Atheros IPO Raises All Boats).

For, as both Airespace's Cohen and Aruba's Callisch recognize, the market is still an awful lot more cautious about technology IPOs than it was in the bubble years.

As Callisch puts it: "The market nowadays just won't tolerate three guys in a garage with a big vision. They want to see at least three quarters of solid revenue from startups."

In filings with the SEC, Atheros reported $87 million in revenue in 2003, but it was not profitable.

This may help to explain rival startup Trapeze's newfound caution about talking up its IPO prospects. "We are 100 percent focused on building our business and winning customers. It is much too early to be concerned with IPO plans," Trapeze's VP of product management and marketing told Unstrung in an email reply to questions.

One of Trapeze's former marketing VPs was much less circumspect about IPO talk. George Prodan -- who left the company last October -- initially started talking about an offering when the firm scored $34 million in its second round of funding in June 2003 (see Trapeze Swings $34M). After staff cuts and executive changes in 2003 and 2004, Trapeze is now being a little more cautious (see On Yer Bike, Manic!, Trapeze's New Swinger, and Trapeze's Wireless Wobbles).

Airespace's Cohen says there is one more issue that could influence all tech startups now trying to decide whether they should go public: The Google factor.

Market watchers are looking at the Internet search engine's forthcoming IPO as a major indicator for all technology startups that may want to float their stock anytime soon (see What's Google Worth?).

"People are all focused on Google," notes Cohen. "Google is going to be the first major post-bubble IPO of an Internet company."

— Dan Jones, Site Editor, Unstrung

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