Tough Seas for New IPOs

Alliance Fiber Optic Products Inc. (Nasdaq: AFOP) hoped for better things when it filed for IPO this fall. But its market debut has been a disappointment -- and a testimonial to the current poor environment for optical IPOs.

To start with, AFOP, which makes DWDM components, wound up offering fewer shares than originally planned. Instead of the 6,250,000 shares it proposed in its October SEC filings, the vendor offered 4,500,000 shares, as per a November 1 S-1/A filing. AFOP also ended up offering its shares yesterday morning at $11, the low end of its $11-$13 range.

The adjustments proved to be bad omens. Yesterday, AFOP shares closed at $10.12, an unspectacular start. At close of business, the startup had a market cap of $338.4 million. Today, shares fell more than 12 percent and were trading at $8.81 by late afternoon -- and AFOP's market cap was $305.9 million.

This dismal debut is a clear indicator of the bearish market forces presently at work. It also highlights a tougher market attitude toward optical startups, particularly in the components space, where investors may have trouble fathoming new technology or trusting its promise.

But AFOP's flop has left other Wall Street wannabees seemingly unfazed. Earlier this week, for example, Optical Access Inc. (proposed Nasdaq: OPKS), a wholly owned subsidiary of MRV Communications Inc. (Nasdaq: MRVC) that makes optical wireless gear for last-mile CLECs, filed an S-1/A for an offer of 5 million shares priced between $11 and $13.

There's also a queue of other optical companies that have recently registered to go public:

  • Cidra Corp. (proposed Nasdaq: CIDC) -- DWDM components -- filed for a $150 million offering (number of shares unspecified) in an S-1 on October 11
  • OMM Inc. (proposed Nasdaq: OMMI) -- photonic subsystems -- filed for a $124.2 million offering of 9 million shares in an S-1/A on October 25
  • Tellium Inc. (proposed Nasdaq: TELM) -- optical switches -- filed for a $262.5 million offering of 17.5 million shares in an S-1/A on November 7
  • Wavesplitter Technologies Inc. (proposed Nasdaq: WVSP) -- lightguides and circuit components -- filed to offer 10 million shares (total aggregate unspecified) at $13 to $15 per share in an S-1/A on November 13

    So far, these companies are on track to IPO. But time will tell how well the market receives them. The seas are definitely rough. Reports of a slowdown in the optical market, such as that recently released by The Dell'Oro Group (see Optical Downturn), have aggravated a market already set into jitters by a series of lower-than-anticipated earnings reports and subsequent downgrades (see Nortel's Fright Night and Cisco Caught by Capex Concerns).

    Although much of the reaction to these events may be overblown (see Optical Stocks: Panic? Schmanic! and Nortel's Optical Halloween), analysts say the heady atmosphere that greeted many optical IPOs in past months is in the process of being corrected. "The past two years were unusual," says Mark Langley, director at Epoch Partners. Now, he says, startups will have to show more value in terms of customers, product, and plans earlier on.

    -- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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