Atheros IPO may spark wireless boom
Published: Wednesday 18 February, 2004
WLan chipmaker Atheros has enjoyed a successful initial public offering (IPO) on the Nasdaq exchange, sparking speculation that a wave of wireless IPOs will follow.
Although few expect – or want – a dotcom-style wireless IPO boom, there is new confidence in the sector following last year’s successful initial offerings by Netgear and iPass. And many of the switch start-ups, such as Aruba and Airespace, which have been talking about IPOs in vague terms for some time, are now hinting that they will make the move in 2005.
The chipmaker priced shares at an initial level of $14 and opened at $18.75, though this slipped to $17.60 at the close on Thursday – still almost 26% up on the offer price in a slow day for the market as a whole and valuing the company at 10 times revenues. It made revenues of $87m in 2003, up almost fourfold on 2002, but warned in the prospectus that it would not expect growth on that scale again. For the first nine months of last year, it made net losses of $12.9m.
Although many companies were eyeing Atheros eagerly, with a view to their own IPO plans, as many dotcoms found, it is what the company does with its newly raised funds that will be the real measure of success. The company has strong positions in some areas of Wi-Fi chips, notably souped-up processors aimed at multimedia devices, but it is also, after the recent wave of consolidation, the smallest of the major players in this sector and under huge pressure from Intel, Broadcom and Conexant, lacking the R&D funds, partner influence and brand of any of those.
It has typically taken the innovative approach demanded of the underdog, notably its recent launch of a single-chip, low power 802.11g product that shifted the price/performance goalposts for Wi-Fi by bringing 54Mbps performance to low cost, compact devices, stealing a significant march on Broadcom.
However, such moves hurt Atheros’ own margins too, in an increasingly price sensitive market, and sometimes it has paid the price of being an innovator by taking the wrong gamble, notably when it backed 802.11a ahead of the more popular 802.11g.
Success post-IPO will depend on the quality and strength of its customer relations even more than on nifty technology. The biggest coup would be to sign up Cisco, whose chip strategy for its access points is currently the topic of heated speculation. The world’s largest buyer of Wi-Fi chips recently stopped making its own WLan chips through its Radiata unit, and its traditional partnerships have been under question since GlobespanVirata (now part of Conexant) acquired Intersil, Cisco’s main supplier in the enterprise range.
Since then and Cisco’s own acquisition of Linksys, there has been speculation that the company would adopt a single-source strategy, possibly turning to Linksys’ main supplier Broadcom. Now US publication Unstrung claims sources say that Cisco is developing a midrange AP called Aerolink, using Atheros chips and aimed at small and medium enterprises.
Whether Atheros opens a floodgate of wireless IPOs will depend partly on a company outside the sector, Google, whose coming IPO is expected to be the best indicator of the health of hi-tech offerings. This is no return to the dotcom years however – to make a successful offering, companies need to show several quarters of solid revenue growth and preferably some profits, criteria that few Wi-Fi start-ups meet.
This was highlighted last July, when hotspot aggregator iPass beat expectations with its IPO, raising $98m and seeing its shares rise by 33% to $18.67 in the first day’s trading. This took the company’s market value just over the $1bn barrier from a starting point of $822m.
Despite the success of the offering, iPass was a sound IPO prospect, not the product of a dotcom-style madness. It is a solid company with sound investors, including Cisco; strength in industry alliances, revenue streams and future roadmap; and a well proven operating model. The valuation was good for the climate but not inflated, it had increased revenues from $53.2m in 2001 to $92.8m in 2002 and was profitable. The market will be looking for similar high standards from wireless IPOs during the rest of 2004 too.
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