Sycamore amid top debut pct gainers
Friday October 22, 7:25 pm Eastern Time
(New throughout, adds analyst comments, changes byline, PVS NEW YORK, updates with closing stock price.)
By Duncan Martell
PALO ALTO, Calif., Oct 22 (Reuters) - The shares of optical networking firm Sycamore Networks Inc. (NasdaqNM:SCMR - news) soared nearly five-fold on Friday after its $284.1 million initial public offering, making it the fourth most successful IPO ever.
The shares, priced above the expected range at $38, opened at a staggering 270-7/8 on the Nasdaq. By the end of the day, they had settled back and closed at 184-3/4, up 146-3/4 for a gain of 386 percent.
Founded in just 1998, Sycamore has all the buzzwords in the right places: data networking, the Internet and, now, the latest word-du-jour, optical networking. The company, with just two customers according to its prospectus, joins a handful of other networking companies that have held stunningly successful IPOs in recent months.
``Optical networking is the next frontier for carrier networks,' such as phone companies and Internet service providers, said James Slaby, senior industry analyst at market researcher Giga Information Group.
Based outside of Boston in Chelmsford, Mass., Sycamore's technology let phone companies and others transmit data solely on wavelengths of light, unlike current technology that requires optical signals traveling across fibers to be converted into electrical signals.
``This technology allows carriers to greatly increase capacity on the fiber they've already laid' in the ground, Slaby said, adding that it also cuts costs significantly.
Sycamore's debut follows IPOs from Foundry Networks Inc. (NasdaqNM:FDRY - news), a maker of networking switches, in September. Foundry soared 525 percent in its first day of trading and closed at 156-1/4, up 131-1/4. Juniper Networks (NasdaqNM:JNPR - news), a maker of high-speed routers, sold shares to the public in June and they nearly tripled on its first day.
Sycamore also has the wind at its back, at least for now, because there are virtually no competitors yet to Sycamore with products as advanced, said Tom Nolle, president of CIMI Corp., a telecommunications consulting firm based in Voorhees, N.J.
Sycamore had a loss of $19.5 million in the year ended July. From that date, back to the Feb. 17, 1998 founding of the company, Sycamore lost $693,000.
With the explosive growth of the Internet and the concomitant surge in data traffic, phones companies and others are scrambling to boost capacity in their networks. Young start-ups such as Sycamore, Foundry, Juniper, Extreme Networks Inc. (NasdaqNM:EXTR - news) and others are racing to ease bottlenecks.
But the big guns of networking, such as No. 1 Cisco Systems Inc. (NasdaqNM:CSCO - news), Nortel Networks Corp. (Toronto:NT.TO - news), Lucent Technologies Inc. (NYSE:LU - news) are hardly standing still. Cisco in August agreed to buy start-ups Cerent Corp. and Monterey Networks Inc. for a combined $7.36 billion in stock, its move aggressive move yet into the hot optical networking market.
At the time, many analysts and others blanched. The $6.86 billion Cisco, San Jose, Calif., agreed to pay amounted to more than $20 million for each Cerent employee. But now, analysts, said the billions they paid make Cerent look like a bargain compared to the first-day market valuation Sycamore boasts.
Sycamore ended the day worth $14.4 billion. The company's chairman and founder, Gururaj Deshpande, 48, holds a stake worth $3.27 billion and Chief Executive Daniel Smith holds a stake worth $2.72 billion.
Deshpande and Smith both came from Cascade Communications Corp., which was bought by Ascend Communications Inc. Lucent Technologies Inc. (NYSE:LU - news) bought Ascend for $24 billion in June.
``Right now it's kind of early days for all these companies' such as Foundry, Juniper, Extreme, Sycamore and others, said John Armstrong, senior analyst at market researcher Dataquest. ``They get great IPO valuations but they have to deliver the goods over the long term, and that will become increasingly difficult as the market matures, competition increases and prices fall.'
``We have a lot of hard work to be done, but we feel comfortable about our opportunity,' said Deshpande about the company's valuation.
The networking firm raised $284.1 million after pricing its IPO above the expected range, which had been sharply raised prior to the offering. Sycamore initially expected to price the shares in $18 to $20 range, but raised the range to between $35 and $37 prior to the offering. It sold 7.475 million shares, or a 9.7 percent stake in the company.
Morgan Stanley Dean Witter & Co. led the offering, joined by Lehman Brothers Inc., J.P. Morgan & Co. and Dain Rauscher Wessels as co-managers. |
