Is ArrowPoint IPO Next In Hot Segment?
By Todd Spangler, Inter@ctive Week
January 20, 2000 5:02 PM ET
zdnet.com
Will ArrowPoint Communications have the next blockbuster initial public offering in the Web switch category?
The Acton, Mass., maker of intelligent switches for Web sites is expected to file for an initial public offering (IPO) within the next two months. ArrowPoint (www.arrowpoint.com) un doubtedly hopes to emulate the eye-popping performance of two of its competitors — Alteon WebSystems (www.alteon.com) and Foundry Networks (www.foundrynet.com) — that went public last fall.
ArrowPoint executives declined to be interviewed for this story. In an interview in September 1999, ArrowPoint founder and Chief Executive Cheng Wu discussed the company's IPO plans and said he expected the offering to come out in the first quarter of 2000. Wu said the IPO of Gigabit Ethernet switch vendor Extreme Networks (www.extremenetworks.com) first proved to Wall Street that a small networking company focused on a niche could compete with Cisco Systems (www.cisco.com), the Goliath that dominates many networking segments.
"There's a general belief now that non-Cisco, nonbrand-name stuff can succeed in the networking space," Wu said last fall. "Once the investment community senses that newcomers are viable, they tap into that excitement."
Wu explained the reason for the timing of the IPO. ArrowPoint, founded in 1997, started shipping products in the fourth quarter of 1998, he said, so if it goes public this quarter it will have been generating revenue for four quarters. He would not disclose ArrowPoint's revenue or whether the company was profitable.
ArrowPoint in recent months has been laying the groundwork for its IPO. In November 1999, the company hired as president and chief operating officer Lou Volpe, previously an executive at GeoTel Communications, a call-routing software company that went public before being acquired by Cisco last year. In addition, ArrowPoint apparently has selected an investment bank for its IPO. According to a source familiar with the company's plans, The Goldman Sachs Group will be the lead underwriter for the ArrowPoint offering. Representatives of Goldman Sachs declined to comment.
Even by its competitors ArrowPoint is regarded as the pioneer of switching Internet traffic based on content. In late December 1999, ArrowPoint was granted a patent for its method of directing Internet Protocol traffic based on the type of content requested. The content-based switching technology — also referred to as "Layer 7 switching" — helps make Web sites more reliable and responsive.
But Peter Christy, principal analyst at the Internet Research Group (www. irgintl.com), cautions that while being an early leader has put ArrowPoint in a good position, there's no guarantee it will thrive in the long term.
"It depends on their ability to nurture the markets," Christy says.
ArrowPoint sells its content-aware switches to service providers, "dot com" start-ups and traditional companies adopt ing Web strategies. Customers include BankBoston, Delta Airlines, Exodus Com munications, GiftCertificates.com, NaviSite and UUnet Technologies. ArrowPoint also has signed deals with Alcatel and Lu cent Technologies to license itsechnology.
It's difficult for a young, small company — ArrowPoint has 130 employees — to butt heads with the likes of Cisco. But customers such as Toysmart.com, which sells educational toys, have chosen ArrowPoint because of the extensive control its switches provide.
John Puckett, Toysmart.com's chief information officer, says the flexibility of ArrowPoint's switches outweighed concerns he had about its relatively untested technology. "Arrow Point let us totally optimize our infrastructure be cause it can allocate a different percentage of hits to each machine," he says.
An ArrowPoint IPO would follow the big IPOs of Alteon and Foundry, which both sell higher-layer switches like ArrowPoint's. In September, Al teon shot from $19 to $81 on its first day of trading. Its stock has behaved erratically since then — it was hovering at about $75 early last week — and the company enjoys a capitalization of roughly $950 million. Meanwhile, Foundry, which went public a week after Alteon, saw its stock price boom from an opening price of $25 to more than $166 in a few hours; the company's stock was trading at about $120 early last week and its market capitalization is about $14.9 billion.
Analysts generally are upbeat on ArrowPoint. "It's up against some very heavy hitters like Cisco, but ArrowPoint is a strong little company," says Teré Bracco, principal analyst for enterprise infrastructure at Current Analysis.
|
