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IPOs

Zhone Zhaps IPO

Zhone Technologies Inc. confirmed today that it has withdrawn its registration for a $345 million initial public offering.

Zhone spokesperson Tim Donovan says the company is waiting until market conditions improve before it revisits its efforts to go public. “This isn’t any reflection of our core business or how we feel about the company,” he says.

Zhone, which makes a wide variety of local access equipment for service providers, first filed to go public in October 2000. Its most recent S-1 filing update was in December, when the company reported that its revenues for all of 1999 were $60.5 million and its losses for that year totaled $129.6 million (see Zhone Files for IPO).

The fact that Zhone has pulled its IPO speaks volumes about the IPO market. The company, founded by former Ascend executives Mory Ejabat and Jeanette Symons, hasn't lacked for confidence. The company has embarked on an ambitious, multifaceted product strategy. One of its products, the Broadband Access Node, will aim to combine data switching, voice switching, and routing functions into a single box(see Zhone Details Product Strategy).

Shortly after raising $500 million in venture capital and leveraged buyout money, the company went out and bought five companies in 2000 alone: CAG Technologies, an electronics subsystems maker; Premisys Communications, whose Integrated Multiple Access Communications Server (IMACS) provides most of Zhone’s revenues; Roundview Inc., a group of networking software engineers; OptaPhone Systems Inc., maker of point-to-point wireless systems; and Xybridge Technologies Inc., a Richardson, Texas-based softswitch vendor that produces devices designed to replace central office circuit switches with faster packet switches (see Zhone to Acquire Xybridge).

Donovan says Zhone’s revenues have grown “exponentially” from previously reported financial results, though he declined to give numbers. He says Zhone is still growing, despite its recent decision to consolidate offices, layoff employees, and cut costs (see Zhone Rezones ).

“We now have a couple of new products we haven't announced yet that we’re deriving revenue from,” he says. “It made a lot of sense to just pull the filing because when you have that S-1 out there, you’re in a quiet period.”

Zhone, of course, isn’t alone in its decision to wait a while before asking the public markets for funding. Convergent Networks Inc., OMM Inc., and Chorum Technologies Inc. have all decided to pull their IPO bids in recent months. On the other hand, Quantum Bridge Communications Inc. has decided to keep its SEC filings current, and Tellium Inc. is in the throes of its investor road show (see Tellium Hits the Road and Quantum Bridge Stays the Course).

“When we look at all these other companies that have gone public recently, such as Riverstone Networks (Nasdaq: RSTN), I mean, it’s a forced play,” Donovan says. “What company in their right mind would go public in a market that’s not settled yet?”

Riverstone Networks had no comment. Riverstone shares now trade at more than $18, up 33 percent from its IPO price of $12 a share. The company has a market capitalization of $1.88 billion.

-- Phil Harvey, Senior Editor, Light Reading http://www.lightreading.com
Scott Raynovich 12/4/2012 | 8:28:14 PM
re: Zhone Zhaps IPO Judging by the way this company thirsts for cash, I thought they'd give it a shot. What does it mean?
lighter 12/4/2012 | 8:28:05 PM
re: Zhone Zhaps IPO Scott Raynovich wrote
"Judging by the way this company thirsts for cash, I thought they'd give it a shot. What does it mean?"

Judging from the story it seems that Zhone is clearly in a search for profitability and are not stupid enough nor in the position to test the current market waters. I judge this a prudent move for Zhone or any company in a similar position- as long as they have the cash and income to sustain being private and hopefully they do! More power to them! I dont know if Zhone is cash thirsty as Raynovich says but if they are I pity them and all of the many cash hungry privite networking companies who arer tying to navigate these wierd networking waters.

If a company can afford to delay an IPO as Zhone has then its probably a prudent move in the current market. Besides Riverstone I would submit Cosine, Loudcloud, Corvis and Accelerated Networks to the table. Accelerated was recently delisted from the Nasdaq and Corvis,Cosine and Loudcloud have also had troubles-and are all losing goobs of money. It wasnt that long ago that money losing companies could go public and the market would still support them with extreme fanfare and lofty stock prices - unfortunately or fortunately those times are gone and now its the "ITS ONLY THE PROFITS STUPID!!! Stock Market"!

Its definately not a great time for money losing networking companies to go public and Zhone and others have clearly saw the light. I applaude Zhone and all of the other networking who have
withdrawn thier IPOs for realizing this.

For all of the itching to IPO private companies like Zhone this sucks since they had plans to make it out by this time hopefully they all have enough cash to stay private until the market or their profit turns.

Its clearly a Darwinien market "Survival of the Pre-IPO Fittest" May the best companies win!!!! Oh
such fun times ahead!
pluckon 12/4/2012 | 8:19:04 PM
re: Zhone Zhaps IPO Four questions:

1. How much cash has Zhone raised in all of its rounds?

2. How much cash is left?

3. What is the level of Zhone's revenues?

4. What products do they have available right now?
fk 12/4/2012 | 8:19:03 PM
re: Zhone Zhaps IPO You make a lot of good points about Zhone and the market in general. Yes, many of us would have liked to have been out by now, but the retrenchment by the carriers with regard to capital expenditures means that many of us are behind where we'd like to be. Zhone is apparently no different. It's difficult to handicap whether Zhone is acting out of strength or weakness from my viewpoint. Zhone could realize that the writing is on the wall and that going out now would be an Agere. Or it could be that they have the financial wherewithal to delay their public offering until the market is less punishing in order to derive less dilution for their capital requirements. What is clear is that going out now is not for companies that are not ready, really ready, to deliver profits within 2-4 quarters.

Aside from general (stock) market conditions being unfavorable, the carrier spending reduction means that carriers are being much more picky about whose boxes they deploy. Not only does this mean that the product itself will be more carefully scrutinized, it also means that carriers will be more mindful of a startup's viability before deciding to make a deployment. Given the Darwinian market, carriers really want to be assured that the company whose products they purchase today will continue to be viable next year. And the sales cycle is so incredibly long! There's definitely no "in the lab for a month, then field trials, then deployment in a couple more months" anymore.

Let's hope the economy picks up a bit. The waiting is getting nerve-wracking.
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