| Corvis (CORV) : Just when you started getting used to using Price/Sales ratios instead of P/Es, along comes Corvis. This optical networking company's IPO, which is expected to price Thursday and trade Friday, will not only produce market cap for the company of at least $5 bln -- and probably much higher -- but it will do so without the benefit of revenues. But at least revenues are in the pipeline -- the company has successfully completed a field trial of its equipment with Broadwing (BRW), which has committed to $200 mln in purchases over the next two years. Williams (WCG) has also agreed to $200 mln over two years, pending completion of its trials. The Corvis equipment being snapped up by these companies falls under the broad category of long haul transmission gear. Optical signals deteriorate as they travel, and must undergo costly regeneration every 400-600 km. Corvis' primary product is its optical amplifier, which extends the distance that optical signals can travel without regeneration to 3200 km, producing huge potential savings for service providers. Corvis also offers an optical add/drop multiplexer, and hopes to make its optical switch commercially available later this year. But it is the amplifier technology that has created the real buzz around Corvis. Of the key players in this space, Qtera was acquired by Nortel (NT), and Algety Telecom was acquired by Corvis. Long haul transmission is one of the few remaining gaps in Cisco's (CSCO) optical product line, which is why Cisco was frequently rumored to be a potential acquirer of Corvis (Cisco owns a 5.4% post-offering stake in Corvis). The value of the amplifier product to service providers and the relative scarcity of this technology explains why the market is prepared to give Corvis a multi-billion valuation before it books any revenues. Note that Corvis will offer a relatively large 27.5 mln shares, and that the post-offering share count will be 330.5 mln. At the high end of the offering range of $15, the company would have a $5.0 bln market cap. A better guess of the opening trade is in the $50 area, giving the company a market cap of better than $16 bln. Aside from pre-IPO shareholders, the other potential winners with the Corvis IPO are the rest of the optical networking sector -- SCMR, ONIS, CIEN in particular. As always, investors are also looking for cheap ways to play the IPO. One of those options was Comdisco (CDO 29 7/8 -1/8), which we noted in a July 12 In Play comment as a Corvis play due to its 5.47 mln share post-IPO stake. The stock has run 22% since that time, which is why we say was a play. Another play is Roctest (RTT on the Toronto exchange) -- the company will own roughly 1.26 mln shares of Corvis after the IPO, which at our guesstimate of $50/share would be valued at $63 mln. But as with CDO, this is pretty much played out, as the stock has more than doubled since the Corvis news came out, adding roughly $37 mln in market cap in the process. Other beneficiaries include CORV's first two customers -- BRW and WCG -- both of which will own about 3 mln shares after the IPO. - Greg Jones, Briefing.com |
