Shares in optical gear vendor Infinera Corp. (Nasdaq: INFN) began trading today at $16 a share and soon climbed more than 20 percent. That debut price was even higher than the already raised IPO price, which went to $13 from a range of $10 to $12 this morning.

Infinera, which makes a highly integrated DWDM platform, offered a total of 14 million shares. After underwriting expenses, net proceeds from the offering were expected to be approximately $165.2 million. (See Infinera Prices IPO, Infinera Builds in Q1, To Infinera & Beyond!, and IPO Alert: Infinera Files Its S-1.)

Goldman Sachs & Co. , Citigroup , JP.MorganChase , Lehman Brothers , and Thomas Weisel Partners served as underwriters on the IPO. In addition to the 14 million shares Infinera issued, an additional 2.1 million shares went to underwriting companies.

The $13 offer price gave Infinera a market capitalization of approximately $1.1 billion, although early interest in the company is forcing that much higher. On heavy initial volume, shares of the company traded as high as $21.24 in early trading. By mid-afternoon shares had settled above $19, which would place its market cap closer to $1.5 billion.

That's good news for its early investors, who, all together, plowed some $336 million in venture capital funding into the company. Its most recent funding round, for $110 million, came in July 2006.

Firms that have invested in Infinera include Advanced Equities, which held a 9.3 percent stake in the company pre-IPO; Kleiner Perkins Caufield & Byers , also with a 9.3 percent stake; Mobius Venture Capital , which held 7.8 percent; and RWI Ventures , which owned 5 percent.

Infinera's business is based on a DWDM platform that combines 60 discrete optical components onto a pair of chips. While Infinera has posted strong revenue growth in the last several quarters, there are still several concerns with the company's business. And the strength of an optical company's first day of trading isn't always the best indicator of its performance going forward. (See The Weight of Infinera.)

For the first quarter of 2007, Infinera reported a loss of $19.8 million, or $2.62 a share, on revenues of $49.2 million. That compared with a loss of $25 million, or $3.55 a share, on sales of $43.8 million in the fourth quarter of 2006.

While the increasing revenues are a positive sign, the company is still unprofitable, posting a combined net loss of $89.9 million for fiscal year 2006.

Another concern is that some of Infinera's best customers, so far, are combining. The restated S-1 reports that Level 3 Communications Inc. (NYSE: LVLT) and Broadwing, which Level 3 acquired in January, accounted for 75 percent of its revenues in 2006.

Infinera's challenge, as it grows up as a public company, will be to win a big carrier contract, perhaps at the expense of competitors such as Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Ltd. , or Siemens AG (NYSE: SI; Frankfurt: SIE).

Recent customer wins include Global Crossing (Nasdaq: GLBC), Integra Telecom Inc. , Internet2 , Mid-Atlantic Broadband Cooperative , and FPL FiberNet LLC . (See Global Crossing Picks Infinera, Integra Picks Infinera, Internet2 Picks Infinera, MBC Selects Infinera, and FPL Selects Infinera.)

— Ryan Lawler, Reporter, Light Reading