Deep packet inspection vendor Allot plans $82 million IPO, as recently-listed rival Sandvine turns a small profit in Q3

October 31, 2006

3 Min Read
Allot Plans IPO as Sandvine Profits

Deep packet inspection (DPI) vendor Allot Ltd. (Nasdaq: ALLT) has filed for an IPO on Nasdaq that could raise $82 million. (See Allot Files for IPO.)

The Israeli company plans to offer 6.5 million shares priced at between $9 and $11 and list with the ticker ALLT. But if the demand is strong enough, Allot has granted the underwriters, led by Lehman Brothers , a "30-day option to purchase an additional 975,000 ordinary shares."

If those additional shares are listed and Allot achieves its top end price of $11, the company would raise $82.225 million. That would also mean that about one third of the company's stock would be publicly traded, and would value Allot at $246 million.

All the shares being offered are new, as the company's backers, including Tamir Fishman Ventures and Jerusalem Venture Partners , are not selling any of their stock at this stage. The IP traffic management specialist has raised about $26 million in VC funding.

The news comes as rival Sandvine Inc. , which this year debuted on the London and Toronto stock exchanges, announces a small profit in its third quarter, and fellow DPI player Narus Inc. secures $30 million in funding. (See Narus Nails $30M for DPI, Sandvine Revenues Up 99%, and Sandvine Leaps on London Listing.)

Allot's decision also comes as the DPI market is set for significant growth. According to forecasts published in a recent Light Reading Insider report, "Deep Packet Inspection: Taming the P2P Traffic Beast," carriers are on course to spend more than $580 million on DPI technology in 2010, compared with less than $100 million in 2005. (See Insider: P2P Drives Use of DPI.)

The vendor, which currently has about 230 staff, has been expanding in 2006, opening new offices and launching new products. (See Allot Expands, Allot Expands Portfolio, Allot Goes Deep on Packets, and Allot Launches NetXplorer .)

Allot's filing with the Securities and Exchange Commission (SEC) shows that, financially, it is currently performing slightly better than rival Sandvine. In the nine months to September 30, Allot reported revenues of $24.6 million and a net income of $563,000. That's significantly better than the $15.9 million in revenues, and loss of $2.7 million, reported for the same period in 2005.

Sandvine, meanwhile, generated revenues of 22.4 million Canadian dollars (US$20 million) and a loss of C$0.5 million (US$445,000) in the nine months to August 31.

What's clear from the results of both companies, though, is that there are impressive gross margins to be had in the DPI sector -- 78 percent for Allot during its nine-month period, and 73.6 percent for Sandvine in its nine-month period.

The two companies, though, show a marked difference in terms of the geographic breakdown of their sales. While Allot, in the reported nine months of 2006, generated 50 percent of its revenues in Europe and 22 percent in the U.S., Sandvine generated 94 percent of its revenues in North America and just 4 percent in EMEA (Europe, Middle East, and Africa).

Allot's customers, which use the vendor's technology to inspect and identify IP traffic, analyze network usage, and optimize network resource allocation, include China Unicom Ltd. (NYSE: CHU), China Telecom Corp. Ltd. (NYSE: CHA), Fastweb SpA (Milan: FWB), ntl group ltd. (Nasdaq: NTLI), NTT Communications Corp. (NYSE: NTT), SingTel Optus Pty. Ltd. , and PCCW Ltd. (NYSE: PCW; Hong Kong: 0008).

Sandvine last week added C$13.2 million (US$11.8 million) to its coffers by issuing new shares to place on the Toronto exchange, having listed on London's Alternative Investment Market (AIM) in March this year. (See Sandvine Closes Offering.)

It plans to use some of that cash "to fund acceleration of the Group’s growth in the markets of new emerging access technologies such as fibre-to-the-home and wireless." Sandvine's current customer base of 65 network operators is roughly 60 percent cable operators, 40 percent DSL service providers.

Other specialist vendors in the traffic management market include CacheLogic , Cisco Systems Inc. (Nasdaq: CSCO) (courtesy of its P-Cube acquisition), and Ellacoya Networks Inc.

— Ray Le Maistre, International News Editor, Light Reading

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