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Avago IPO's a Go

Craig Matsumoto
8/22/2008
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Nearly three years after being carved out of Agilent Technologies Inc. (NYSE: A), optical specialist Avago Technologies Pte. is ready to go back public again.

Avago filed its form S-1 with the Securities and Exchange Commission (SEC) yesterday. It's got no share price listed and a maximum value of $400 million estimated for the IPO.

Formerly the semiconductor business of Agilent, Avago got taken private in 2005 by Kohlberg Kravis Roberts & Co. (KKR) and Silver Lake Partners . (See Avago Springs From Agilent.)

Since then, Avago has phased in and out of profitability. During fiscal 2007, which ended in October, it took a $158 million writedown of assets and incurred $51 million in restructuring charges, which led to on-paper losses in the July quarter. More recently, Avago clawed back to an 8 cents-per-share profit for the quarter that ended in May.

Table 1: Avago's Earnings

Quarter ended July 31, 2006 Oct. 31, 2006 Jan. 31, 2007 April 30, 2007 July 31, 2007 Oct. 31, 2007 Feb. 3, 2008 May 4, 2008
Revenues ($M) 408 393 375 380 381 391 402 411
Earnings (Loss) Per Share ($0.11) ($0.36) $0.03 $0.02 ($0.78) ($0.01) $0.02 $0.08
Source: SEC filing. Results for the most recent four quarters are unaudited.


Avago has slimmed down as well, having sold off off four businesses. That includes the sale of the storage operation to PMC-Sierra Inc. (Nasdaq: PMCS), a deal that happened before the Avago spinoff became official. (See PMC Bites a Bit of Agilent and Is PMC Storage Shopping?)

Table 2: Pieces Avago's Sold
Business Sold to: Base Price
Oct. 2005 Storage PMC-Sierra $420M
Feb. 2006 Printer ASICs Marvell $245M
Nov. 2006 Image sensors Micron $53M
c.Nov. 2006 Image sensors,
intellectual property
undisclosed $12M
Oct. 2007 Infrared operations Lite-On Technology $19M
Source: Avago S-1.


Avago's products cover quite a swath, encompassing color sensors, LED displays, and radio frequency (RF) devices. In telecom optical, it sells transmitter and receiver modules as well as transceivers.

One question is whether Avago wants to brave this market, which hasn't been particularly friendly. The Nasdaq Composite has been up lately, but it's down about 15 percent since early November.

How has all this worked out for Agilent? The Avago spinoff, combined with other divestitures, was supposed to kick-start the stock as the company focused on its test-and-measurement strengths.

Agilent stock traded at $33.90 on Dec. 1, 2005, when the Avago spinoff was announced. After some ups and downs, it's right back at that level, closing at $34.63 yesterday. But it's recovered after suffering a dip, along with most tech stocks, during the first part of this year.



— Craig Matsumoto, West Coast Editor, Light Reading

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deauxfaux
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deauxfaux,
User Rank: Light Beer
12/5/2012 | 3:33:59 PM
re: Avago IPO's a Go
....I haven't read through the whole S-1 yet, and probably won't until later this week...but

It is clear that KKR/Silverlake has been funding Avago with BIG notes; and the new company is going to start out $700M!!! They racked up $100M+ in interest expense alone with R&D only costing the company $200M. It looks like they restructured the notes in order to help the company post a profit this year.

It is a break even business that is generating enough cash to pay its debts...but that is about it.

Buy this IPO and you will continue to fill KKR and Silverlakes pockets for the forseeable future
Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 3:33:58 PM
re: Avago IPO's a Go
I was talking to a VC who offered one theory why Avago would be going IPO now:

There were practically no IPOs in Q2 (possibly *none*; I haven't checked) -- meaning there's probably pent-up demand. In a hungry market, a known quantity like Avago could be attractive.

"It's like when the housing market drops and you get this rush of demand -- it actually boosts the best properties."

It's a theory, anyway.
Steve0616
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Steve0616,
User Rank: Light Sabre
12/5/2012 | 3:33:56 PM
re: Avago IPO's a Go
and what did P.T. say....there's always an ass for every seat...well something like that.
KaChing
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KaChing,
User Rank: Light Beer
12/5/2012 | 3:33:54 PM
re: Avago IPO's a Go
KKR and Silver Lake may want to press ahead with Avago IPO plans during this down market and limited profitability because they don't expect it to get better. There isn't much more of Avago that they could easily sell off. KKR may see a better return in management fees of an IPO. KKR Capital Markets LLC is an underwriter.

The S-1 notes that Avago plans to retire $240M in debt principal with the IPO proceeds, although they list $700M in debt currently remaining from the junk bond buyout. From the stated $400M IPO, that leaves a good $100M to pay KKR and Silver Lake to terminate their "management services" which is left blank in the S-1.
Stevery
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Stevery,
User Rank: Light Beer
12/5/2012 | 3:33:54 PM
re: Avago IPO's a Go
Oh brother. Did this VC actually pass the redface test while delivering such an amazing load of crap to you?

I was talking to a VC who offered one theory why Avago would be going IPO now:

There were practically no IPOs in Q2 (possibly *none*; I haven't checked) -- meaning there's probably pent-up demand.


It could also mean that he is delusional: There is a complete meltdown happening in the capital markets. If your company isn't profitable, then you're probably desperate.

In a hungry market, a known quantity like Avago could be attractive.

Yep, that's what we have. A hungry market.
HahahaAHAHAHAhahahaha.

"It's like when the housing market drops and you get this rush of demand -- it actually boosts the best properties."

Apparently, your rocket scientist failed to notice that 35% of recent housing sales are foreclosures. Sonoma is down 30% YOY and still dropping like a rock. And the top end is worse in terms of YEARS of inventory buildup.

It's a theory, anyway.

So is pastafarianism. Where did I put my pirate outfit?
reese_lightening
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reese_lightening,
User Rank: Light Beer
12/5/2012 | 3:33:53 PM
re: Avago IPO's a Go
Well said Stevery, seems like this VC also came up with the theory of perpetual motion.
KaChing
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KaChing,
User Rank: Light Beer
12/5/2012 | 3:33:52 PM
re: Avago IPO's a Go

"It's like when the housing market drops and you get this rush of demand -- it actually boosts the best properties."

Another analogy for Avago is that KKR has sold off all the furniture, doors, and windows to pay the mortgage. Now they will put the rest up for auction, while paying themselves the comission.
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