Eye on the IPO: The Optical Light Still Burns Bright
stockhouse.com
Orlando, FL, October 30 /SHfn/ -- A volatile NASDAQ has continued to play havoc with the tech IPO market. As once-hot tech sectors like optical networking and telecom have suddenly come under heavy fire, the demand for most new IPOs has come to a screeching halt.
The reality is that in this current turbulent environment, institutional investors have bigger fires to put out than to worry about digesting any new issues for the time being. In fact, a staggering nine public offerings were either delayed or withdrawn so far this week.
Even with that being the case, five private companies are still slated to try and come public the week of October 30, according to IPOCentral.com. Of this small list, interesting tech deals to watch include Adexa [ADXA], a developer of e-commerce collaboration software and Viewlocity [VIEW], a supply chain software company.
The most intriguing deal on tap for next week is the $115 million public offering of Optical Communications Products [OCPI]. The Chatsworth, California-based company is a manufacturer of fiber optics subsystems and modules for broadband networks. In other words, OCP provides a variety of the components that are used to build network equipment, which is then sold to telecom carriers.
Investment bank UBS Warburg is leading the deal with assistance from J.P. Morgan, Piper Jaffray and Wit Soundview. If OCP prices at the middle of its $10-$12 a share range, the company could come out of the gate with an initial valuation of over $420 million.
Even with this week's Nortel-induced scare regarding the long-term growth potential of the optical networking sector, OCP still appears to be attacking a gigantic market. Research firm Ryan, Hankin & Kent estimates that the fiber optics component market will grow to a staggering $22.5 billion by 2003.
OCP has amassed an impressive customer list over the past nine years, which includes virtually all of the largest networking equipment companies in the industry. Current OCP customers include 3Com [COMS], Alcatel [ALA], CIENA [CIEN], Cisco Systems [CSCO], Lucent Technologies [LU], Nortel Networks [NT] and Marconi Communications [MONI]. In fact, Cisco alone accounts for nearly a quarter of the company's total sales.
Even better, OCP is really not fighting the optical hardware war alone. It is important to note that OCP is currently 70% owned and controlled by Japan's Furukawa Electric Company [FUWAF], a multi-billion dollar provider of optical products. In fact, Furukawa will maintain roughly 95% voting control of the company post-IPO.
The question is not will this company ever make money, but rather, how much money can it make?
In other words, Furukawa management will continue to really run the show at OCP for all intents and purposes. On the plus side, though, this tight relationship does allow OCP access to Furukawa's sizeable research and development activities. In addition, OCP purchases virtually all of its advanced lasers and other optical components directly from Furukawa.
Competition in the booming fiber optics hardware market is obviously intense. Primary OCP competitors include Agilent Technologies [A], Tyco International [TYC], Stratos Lightwave [STLW], IBM [IBM], Infineon Technologies [IFX] and Finisar [FNSR]. However, given the current demand for networking equipment, there is more than enough business to go around for all of these players.
In fact, OCP reported nearly a 200% increase in sales to over $69 million for the nine-month period ended June 30 of this year. The company checked in with profits of $16.7 million during this same period. In other words, this is one IPO where the question is not will this company ever make money, but rather, how much money can it make? Consider scooping up shares of after OCP's post-IPO quiet period has ended.
While weaker-than-expected sales in the optical equipment division of Nortel sent the optical networking sector plummeting earlier this week, the growth outlook for this space still remains incredibly bright. In fact, stronger-than-expected earnings from optical-components star JDS Uniphase [JDSU] Thursday night help ensure that the market should still warmly receive IPOs like OCP.
This is one promising deal that investors should keep an eye on, and may want to consider scooping up shares of after OCP's post-IPO quiet period has ended. By then, the stock will have had a chance to settle into some semblance of a regular trading pattern.
Then, it may be time to ride the light and not look back on this one.
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Eye on the IPO Updates
C-quential
Regular readers of this column shouldn't be surprised by this news. Last week, I cautioned investors to be skeptical about the prospects of a proposed IPO from Internet consulting shop c-quential [CQTL]. Well, it now looks like this turkey won't be able to sneak past investors before Thanksgiving anyway.
First, c-quential's lead underwriter, Lehman Brothers, sharply slashed the price of the lackluster offering from $13-$15 a share to $7-$9 a share on Tuesday. The IPO was then expected to price on Wednesday, but instead the deal was postponed indefinitely due to "unfavorable market conditions."
In other words, c-quential's bankers couldn't find enough institutions willing to swallow yet another "me-too" Internet consulting company IPO. Better luck next time, fellas!
"Matthew W. Ragas is Editor and Chief Analyst of The Ragas Report, a free daily tech news and commentary e-newsletter. Sign up at: ragasreport.com. He is also author of the upcoming e-business book "Lessons From the E-Front" from Prima Publishing and was Raging Bull Inc.'s founding Editor." |
