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Technology Stocks : Up and coming optical startups -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (53)	10/20/2000 9:49:31 AM
From: mact	Read Replies (1) \| Respond to of 84

just ipo'd a few days ago...in a very hot sector(fiber optic testing equipment)...valuations in this sector huge...they compete with the likes of NEWP, DIGL, TLGD, EXFO...chart the co's mentioned above...from WFN: XXIA, 5.5 million, $10-$12, Merrill Lynch Pre-Offering Analysis The latest generation of high performance networking equipment poses a challenging technical dilemma. Designed for enormous volumes of complicated traffic, their performance and reliability must be tested and ensured before deployment. But, generating such volumes of test traffic in a laboratory is a challenging and expensive technical task. And that’s only half the job. The results must also then be analyzed in detail, an equally enormous task. Ixia has developed a testing and analysis platform for high performance networking equipment. Addressing both optical (packet over SONET) and electrical (Gigabit Ethernet) networks, its products generate test traffic and then analyze the performance. Reception has been positive. Introducing its initial product in late ’98, the firm already reports over 170 customers including Cisco, Extreme Systems, Alteon WebSystems, AT&T, UUNet, Broadcom, Level One Communications, and Lockheed Martin. However, typical of any new firm, customer concentration is narrow, with the top five customers representing 53% of 6m’00 revenues, led by Cisco (34%). But the best reflection of the company’s prospects can be seen in its early performance. This is a fast growing (200+%) firm with substantial revenues ($28.3 million 6m’00) and profitability. It is unusual to see any fast growing firm at this stage with earnings. The current surge is being driven by its optical networking products (61% of 6m’00) which were introduced in 2H’99. · Between ’98-’99 revenues increased by 398.4% to $24.5 million, with a 79.8% gross margin and a 23.7% net profit ($5.8 million) adjusted for equity charges. · Between 6m’99-6m’00 revenues grew 244% to $28.3 million, with an 80% gross margin and a 20% net profit ($5.7 million) adjusted for equity charges. On a fully diluted pro-forma basis, the ’00 EPS (adjusted for equity charges) is estimated in the $0.21 range. At the preliminary offering prices, this suggests a P/E in the 48-57 range. This appears to be reasonable given the rapid growth rates. Valuations in this sector have been mixed. After some early surge there has been erosion. Some loosely related recent IPOs may add some further perspective. · Inet Technologies was a $92.8 million deal offered on 5/27/99. Offered at $16, it closed at $18 for a 12.5% first day. It recently traded at $29.25, adding 62.5% in the aftermarket but in the lower half of its trading range. · Interactive Intelligence was a $35.1 million deal offered on 9/23/99. Offered at $13, it closed at $23 for a 76.9% first day. It recently traded at $39.31, adding 70.9% in the aftermarket and in the upper half of its range. · Avanex was a $216 million deal offered on 2/4/00. Offered at $36, it closed at $172 for a 377.8% first day. It recently traded at $107.69, off 37.4% in the aftermarket and in the lower half of its trading range. · Exfo was a $182 million deal offered on 6/30/00. Offered at $26, it closed at $43.88 for a 68.8% first day. It recently traded at $43.56, flat in the aftermarket but in the lower half of its trading range. Reflecting the firm’s strong early performance, pre-offering demand is reported to be increasing from moderate to strong (Street Scoop: 3 stars). Conclusion: Unlike most emerging high growth tech IPOs, this firm is backing its promise with performance. It is on a fast growth track and is achieving substantial revenues. And it has already achieved considerable profitability. This is a growth firm with fundamentals that more resemble a value play. A late addition to the calendar, we would expect the pre-offering demand to increase as the actual offering nears. For similar firms in this situation we would anticipate a favorable early reception (e.g., 40+%) followed by volatility. ixiacom.com