Riverstone, which equips telecommunications service providers with networking hardware that speeds content over the Internet, hopes to go public in mid- to late February, sources said. Its executives are in the midst of a three-week tour of investment firms, such as mutual fund companies, hoping to drum up interest for its offering.
"Riverstone is testing the waters. But it's risky. It could bomb or it could do well," said George Nichols, an IPO analyst for Morningstar. "They're the crown jewel of Cabletron. But it's tough to bring a telecom offering to a market when both telecom stocks and IPOs are out of favor."
Because of a volatile stock market and signs of a slowing economy, more than 40 companies have abandoned their plans for IPOs since December. Analysts say Riverstone could become the first networking company--and one of the first technology companies--to go public this year. The outcome of Riverstone's efforts will signal to Wall Street whether investors are craving IPOs, they say.
Networking IPOs were strong in 1999 and through the first half of 2000, as Avici Systems, Corvis, Sonus Networks and others saw their stock prices soar, even as dot-com offerings lost their luster.
But a potential downturn in spending by service providers has raised fears that network equipment companies will be hit hard. In the past quarter, for example, 3Com, Lucent Technologies and Foundry Networks warned of lower earnings--and stocks for many networking companies, including Cisco Systems, have plummeted.
Analysts say other networking companies that have filed for IPOs, such as Tellium, Convergent Networks and Zhone Technologies, will watch Riverstone's efforts as a test case for their prospects for an offering later this year.
"People will see how the first few deals will be received and whether the market is ready for more IPOs," said analyst Paul Bard, of Renaissance Capital. "Riverstone will help set the tone for the market since there's been so much uncertainty."
Riverstone, which competes against Cisco, Nortel Networks and other formidable players in the lucrative service provider market, aims to raise about $108.6 million in its offering. In a Securities and Exchange Commission filing earlier this week, the company said it plans to sell 10 million shares for between $11 and $13 each, down from an initial range of $12 to $14 that it set earlier in the fall.
Before the IPO market tanked, Riverstone over the summer appeared poised to become the next hot equipment maker to go public. Analysts in September predicted that Riverstone would emulate the success of other young networking players that went public in recent years, such as Foundry and Juniper Networks, whose share prices reached above $200 this year.
Riverstone, one of four companies spun off from Cabletron, is unlike other start-ups vying for IPOs because the company is already established with customers that include AT&T, British Telecom and EarthLink. The company in late December reported third-quarter revenue of $26.8 million, a 30 percent increase from the previous quarter.
Martin Pyykkonen, an analyst at C.E. Unterberg Towbin, said Riverstone has good potential and should be protected from a slowdown in telecom equipment sales because it sells Internet-based devices that are in high demand. The company is targeting the emerging, but fast-growing market for metropolitan networks--the construction of fiber-optic networks within big cities.
Analysts say Riverstone's decision to lower its IPO price range is not a bad sign. When Riverstone filed to go public last fall, the outlook for IPOs was much brighter, analysts said.
If Riverstone goes ahead with its planned IPO, the company will benefit because there haven't been many technology companies with public offerings lately, said Renaissance Capital's Bard.
"We will see how thirsty investors are for IPOs. I don't think we'll see a huge first-day pop that we might have seen 12 to 18 months ago," Bard said. "But if it's successful, and it's able to move upwards to a 25 to 50 percent increase, that's positive. That would give more confidence to some companies in this sector looking to raise money."
Morgan Stanley Dean Witter, J.P. Morgan, Lehman Brothers and Salomon Smith Barney are underwriting Riverstone's IPO. The company will trade under the ticker symbol "RSTN."