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ONI Systems rockets up 230 percent in debut

ONI Systems (Nasdaq: ONIS) stormed up 57 9/16, or 230 percent, to 82 9/16 Thursday after pricing its 8 million-share offering at $25 a piece.

Shares priced well above their price range of $21 to $23 a share, which was raised from an initial $14 to $16.

"It’s a small offering, its priced aggressively, and fiber optics is one of the few categories seeing support," said Kenan Pollack of IPO Central. He compared the company to Ciena (Nasdaq: CIEN) and New Focus (Nasdaq: NUFO), another optical networking company which made a nice debut a couple weeks ago.

The company also has some gold star names behind it, including Goldman Sachs as the lead underwriter; venture capital giant Kleiner Perkins Caufield & Byers and Sun Microsystems (Nasdaq: SUNW) are also backers.

ONI makes equipment, operating software and protocols to help roll out optic networks. Optical networking is a huge field, and networking giants such as Nortel Networks (NYSE: NT), Cisco Systems (Nasdaq: CSCO), and Lucent (NYSE: LU) have been keen on snapping up some of the smaller players.

The young company, which acknowledged it may need to raise more money after its IPO, has an accumulated deficit of $89.8 million. Its financials are less than appealing; in 1999, ONI lost $46.5 million on sales of $3 million. For the quarter ending March 31, ONI lost $34 million on sales of $3.6 million.

Like many other optical networking players, ONI relies on a small number of customers. The company said Williams Communications (NYSE: WCG), COLT Telecom (Nasdaq: COLT), StorageNetworks (Nasdaq: STOR), Lucent and Internet Initiative Japan (Nasdaq: IIJI) are customers. COLT and Internet Initiative Japan are also shareholders.

The company's competition is also steep, not that investors are likely to care when many of them could be buyers. ONI cited Cisco, Nortel, Lucent, Sycamore, Ciena, Juniper Networks (Nasdaq: JNPR), Alcatel (NYSE: ALA) and Tellabs (Nasdaq: TLAB) as current or future competition.

One of those competitors, Nortel, filed a suit in March against ONI, alleging that ONI's products infringe on five Nortel patents. The company is still in the preliminary stages of investigating the allegations. Nortel is seeking preliminary and permanent injunctions and damages against ONI.