From WSJ yesterday
October 21, 1999
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Overheard:
Online Investors Expect a Sizzler
From Sycamore Networks' IPO
By CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
Investors expecting a sizzling stock-market debut from Sycamore Networks this week have one more reason to be excited: The fiber-optic technology firm nearly doubled the price range of its initial public offering.
The increase in the price of an IPO usually is a sign that underwriters and the company have seen strong demand for a deal during "road-show" presentations aimed at drumming up interest among institutional investors.
"This was to be expected. It's a hot deal and will be a very large company very quickly..." wrote one investor on the Silicon Investor message board devoted to the company (www.techstocks.com).
Sycamore, which is based in Chelmsford, Mass., disclosed in a filing with the Securities and Exchange Commission on Wednesday that it was raising the expected price range for the deal to $35 to $37 a share from $18 to $20.
Company officials declined to comment, citing securities rules that impose a "quiet period" on companies selling new stock.
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Sycamore plans to sell 6.5 million shares. The shares are expected to price after the market closes on Thursday and will begin trading on Friday, according to lead underwriter Morgan Stanley Dean Witter & Co. Based on a $36 mid-point price, Sycamore will have a market value of $2.78 billion.
The increase in the price range of an IPO just before its debut isn't unusual, but a boost the size of Sycamore's is. Only five companies in the past year have raised the price of their IPO that much, according to CommScan LLC, a New York research firm.
However, analyst believe the price increase is an indication of the company's potential. They said Sycamore is entering a hot and burgeoning area. The company makes hardware that boosts the amount of voice, data and Internet traffic that can be carried over fiber-optic networks.
Sycamore is the latest company in the networking-solutions business to go public. Others include Juniper Networks, Foundry Networks and Alteon WebSystems -- which have all had highly successful initial public offerings recently.
"Networking equipment stocks are among the top performers IPOwise this year," noted Ken Fleming of Renaissance Capital's IPO Plus Aftermarket Fund, in Greenwich, Conn.
Mr. Fleming said Sycamore and its competitors could expect booming business. He said many companies are building systems that will utilize their equipment and technology. "A lot of potential customers out there are building their networks. These companies are in a good spot right now, they can grow revenues quickly," Mr. Fleming said.
Steve Tuen, an analyst at the IPO Value Monitor, a New York research publication, agreed. "It's basically a play on Net infrastructure," Mr. Tuen said. "Given the growing Internet base and the increase in data transmissions, I think Sycamore is going to be a hot property."
Sycamore has 173 employees. The company, which will reap about $216.6 million in net proceeds from the IPO, made its first sale in May. It has one customer, Williams Communications Group, of Tulsa, Okla., a newly public and unprofitable company that provides voice, data, Internet, and video services to communications-service providers.
In its SEC filing, Sycamore said Williams is not obligated to purchase any minimum quantities of products. Sycamore said it will not be successful if it doesn't expand its customer base. However, in the foreseeable future, the company said substantially all of its revenues will depend on sales to Williams and a limited number of potential new customers.
Like other high-tech start-ups, Sycamore is not profitable. For fiscal 1999 ending in July, the company reported a net loss of $19.5 million on revenue of $11.3 million. The company said it expects to continue posting losses in the future. Sycamore has an accumulated deficit of $20.2 million.
Indeed, Mr. Fleming acknowledged that upstart companies face tough challenges, but he said Sycamore's experienced management team and the industry's potential are a plus. "There are always risks when you're getting your company off the ground, but this is a management team that's already done it before," he said.
Sycamore was founded in February 1998 by Desh Deshpande and Dan Smith, who built Cascade Communications and sold it to networking-equipment maker Ascend Communications for $2.6 billion two years ago. Lucent Technologies purchased Ascend this year in a $25 billion deal.
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