Tellium Hits the Road

The market for optical IPOs may be as dry as the dust in a mummy's tomb, but Tellium's still looking to make a run for the public markets (see IPO Window Shuts Tighter).

This week the optical switch equipment maker kicked off its IPO investment road show and again trimmed the size of its potential IPO from $141 mllion to $112 million. Road shows, formal tours in which managers give presentations to drum up investment interest, usually happen about a month prior to the day a company becomes public. Several sources confirmed that Tellium had embarked on a road show. The company's PR department offered an official "no comment" in response to Light Reading’s inquiry as to its executives' whereabouts.

In the road show, the company must convince large mutual funds and other institutional investors to support the IPO. Tellium changed the size of its offering in an attempt to make its shares more attractive to investors. The optical switch maker raised its offering price to $13-$15 a share from the $8-$10 a share previously set. However, it cut the number of shares offered from 15 million to 7.5 million.

The price change appears to be cosmetic and might be most important to institutional investors, since many fund managers can't buy stocks that are approaching the low single digits. Had Tellium's shares gone public at $8 and then dropped, it might have scared off some big checkbooks.

The most important metric here is that the possible proceeds from the offering have dropped to $112.5 million from about $141 million, a 25 percent plunge in the offering's value.

It's hardly surprising that the firm's now trying to tap less money from the public markets, analysts say. "Tellium's got plenty of revenues, but their losses are quite high," says George Nichols, an analyst at Morningstar.com. "I doubt investors will be throwing dollar bills at them."

In the most recent SEC filing, Tellium reported that as of March 31, 2001, the company had approximately $166.8 million in cash and cash equivalents. The number of employees had increased from 156 to 493. Also as of March 31, the company reported an accumulated deficit of approximately $206.0 million.

The company's sales are still concentrated in a small number of customers. For example, in the most recent filing, Dynegy Inc. (NYSE: DYN) accounted for approximately 70 percent of Tellium's revenues for the three months ended March 31, 2001, and Qwest Communications International Corp. (NYSE: Q) accounted for about 30 percent of its revenues for the same period.

Tellium also counts Cable and Wireless (NYSE: CWP) Global Networks Ltd. as a customer. That agreement says C&W will buy a minimum of $350 million worth of gear by August 7, 2005. But C&W has the right to reduce its commitment to $200 million.

This is the third time Tellium has lowered the total size of its IPO. In March, Tellium reduced the price range on its offering to $8-10 per share from $13-15. At that time, it not only dropped the price of the offering, but the number of shares offered also decreased to 15 million from 17.5 million. The offering's possible proceeds after that update plunged to below $150 million from the more than $260 million originally envisioned (see Tellium Lowers Its IPO Ambitions).

March was also the month Light Reading first reported that Tellium had switched lead bankers from Goldman Sachs & Co. (NYSE: GS) to Morgan Stanley Dean Witter, which was not previously involved in the offering (see Tellium Switches IPO Bankers). Thomas Weisel Partners is still the co-lead on the offering, supported by UBS Warburg, CIBC World Markets, and Wit Soundview (Nasdaq: WITC).

-- Phil Harvey, Senior Editor, Light Reading http://www.lightreading.com
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dlharding 12/4/2012 | 8:29:50 PM
re: Tellium Hits the Road Best of luck folks...the clock is ticking, the Fat Lady is clearing her throat and people are heading for the exits....

These guys are a year too late....

Maybe they should go and see Tony Soprano for some financing....
lite_boy 12/4/2012 | 8:29:49 PM
re: Tellium Hits the Road Does the reduction of their IPO mean
reverse split ?
iprsvp 12/4/2012 | 8:29:49 PM
re: Tellium Hits the Road I am not sure why Tellium is confident about going
for an IPO. But fundamentally it is very weak when compared to other optical switch makers like
CIEN, NT,Sycamore or CORV. CIEN(both in switch and metro) and NT (In metro) proved their stuff..
CORV and sycamore are hanging in their with whatever stuff they got. But Tellium doesn't really have grooming switch so it can't compete with CIEN. Lack of metro/edge product ties it's hands to compete with NT/Sycamore/CORV. Unless otherwise they have something cooking they wouldn't be so confident about this IPO phase.

Don't tell me that their ALL OPTICAL SWITCH works. I strongly believe that it's going be atlease 1 yr before we see a real all optical switch ( ofcourse I am ignoring CORV pseudo switch as we are not talking about transport switches here) in a action.

Either they are working on of the following products metro/edge/grooming switchs or they are planning for some M&A's after IPO like sycamore did.

Otherwise who is going to buy their non-grooming
switch which are soon going to replaced by
All optical MEMS switches.

Only Krishana Bala would know the answer for this..

Any thoughts??

myresearch 12/4/2012 | 8:29:44 PM
re: Tellium Hits the Road Some Interesting facts:

1) Tellium is a OC48 cross connect. Cisco
just killed a product like that after spending
$500m and another 1.5 years working on it.
It is clear by now that you need STS-1 grooming
to stay in the competition. Ciena's CoreDirector
will rule. Three are startups like Calient and Brightlink working on big STS-1 boxes.

2) There are a lot of backdoor deals, all
customers are stock holders. Many officers
of the customers were given stocks personally.
In other industries, this kind of deals may
land you in jail. Giving stocks to officers
of customers should be banned - what is the
difference of giving them money!

Also see NYTimes article below.


January 22, 2001, Monday
THE MARKETS: Market Place; A Question Of Conflict Amid a Web Of Interests By ALEX BERENSON
Source: The New York Times
Section: Business/Financial Desk
1414 words

Ethical questions raised by Tellium chairman and chief executive Harry J Carr's
activities as Yurie Systems and Lucent Technologies official discussed in light of
Tellium's planned initial public offering; Carr holds such equity sweetners and
related-party transactions are common in information technology industry, as are
executives who make personal investments in their companies' suppliers and
customers; analyst Jack Ciesielski warns investors should be wary of sales
between related companies (M)
little_birdy 12/4/2012 | 8:29:41 PM
re: Tellium Hits the Road All optical is the panacea that some people make it out to be -- out-of-band management isn't likely to fly architecturally for path protection, meaning either OEOEO or splitters for power monitoring (which still doesn't get you assured data integrity), both of which add at least a year for deployable systems. And in the end the price points are in the same range as OEO systems.

Grooming down to itty-bitty data streams is pointless. When you ask the data customers if they want to provision long circuits in small increments, they say, "Ok, sure, I guess so," until you tell them how much it will cost, in which case they'd rather sublease a piece of someone else's OC48.
gea 12/4/2012 | 8:29:39 PM
re: Tellium Hits the Road The logic for a product like Tellium's goes like this....

1) All-optical wavelength conversion is not commercially viable yet, and won't be for several years.

2) PM via Overhead-awareness and avoiding Blocking in optical networks are important enough so that O/E wavelength conversion is strongly desirable (for reasons of inventory as well). In addition, many signals will need regeneration.

3) The vast majority of wavelengths needing cross-connection are OC-48 and OC-192, so a high degree if transparency is not super useful right now.

4) If an "optical" cross-connect performs O/E on incoming signals prior to cross connection, then most of the time it won't matter if the XC matrix is actually optical, or electronic.

Thus, I believe that the full potential of a truly optical cross connect may not be realized for several years, until all-optical wavelength conversion can become mature.

As a result, Tellium's current product probably will fill an important niche in the interim, but eventually the scalability and transparency of a truly optical cross connects will win out. But Tellium has been hiring lots of the big MEMs guns, so it looks like they'll be at the dance. They're also right on with GMPLS and MPLambdaS, so I actually think they're prospects are pretty good in the long run.
netmaniac 12/4/2012 | 8:29:38 PM
re: Tellium Hits the Road iprsvp

You obviously work for one of the other switch vendors or a carrier that doesn't understand core long haul transmission networks.

"Tellium doesn't really have a grooming switch so it can't compete with CIEN." From my view, TELM and CIEN don't have competitive products but rather complimentary products. TELM works in the core of the transmission network providing protection and management at the lambda level while CIEN sits at the edge of the core grooming the STS-1s as required.

Cisco's 15900 is/was the only real competitive product to TELM and I really wish they could have held in there. The real problem, is that they are a bunch of data guys that were trying to develop a transmission product.

As to the OOO switches, I have seen a lot of sales pitches from a lot of vendors and have yet to be convinced that the OOO switch will be ready for prime time in less than 24 months. In my opinion, the vendor that comes out with an integrated OOO/OEO will be the winner. This would then allow me to remain at the optical level for pass through traffic or drop traffic into the electrical fabric that needs regeneration or convert from one optical channel to another.

You also referred to NT, what switch are you referring to? The DX? HDX? If DX, it's nothing but a beefed up ADM. If HDX, I'm from the "Show Me State."

SYCM - Can't scale beyond 64x64 and are hamstrung by components availability.

CORV - Great hype and mystique, but where's the beef?

BTW - I am not a current TELM customer and I don't accept stock options from the equipment vendors.

kraken 12/4/2012 | 8:29:35 PM
re: Tellium Hits the Road what about the altamar switch that got a bunch of hype at OFC?
asilverman 12/4/2012 | 8:29:35 PM
re: Tellium Hits the Road check out Network Photonics for OOO
manoflalambda 12/4/2012 | 8:29:34 PM
re: Tellium Hits the Road Hey all,

How many shares exist outside of the IPO bunch? Or what percentage of shares is the IPO? I was curious as to how much Lucent's 10% might be worth...


psOOO = LambdaRouter
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