UPDATE Optical switch maker Tellium closed the first day of its initial public stock offering at $20.93, up from its debut price of $15.
The stock began on an upswing. Within the first 30 minutes of its public trading debut, Tellium shares rose as much as 46 percent. At one point in the trading session, Tellium shares topped $23.
The company priced its much-anticipated 9 million-share initial public stock offering at $15 per share for trading Thursday, at the top of its revised range of $13 to $15 per share.
Tellium bumped up the number of shares to be offered Thursday. In regulatory filings this week, the company said it was planning to offer 7.5 million shares.
Tellium, which will compete with the likes of Ciena, Nortel Networks and Sycamore Networks has taken a long and winding road to Wall Street. The company twice revised the terms of its IPO after watching the frenzy surrounding optical-equipment makers dissipate and replacing Goldman Sachs in favor of Morgan Stanley as the lead underwriter.
Analysts said bringing any stock public in the current economic climate is a risky proposition, even more so for an optical-equipment maker that posted a loss of $19.8 million in fiscal 1999 on sales of only $5.2 million. Similarly, Tellium figures to post losses for at least the next two years.
"The fact that this stock is even being considered for pricing should scare us all," said David Menlow, president of IPOfinancial.com, an IPO industry watcher.
"We're talking about optical equipment, a sector that had its field day last summer. That's over now," Menlow said. "But I think Morgan Stanley has something up its sleeves. I think the deal is going to work."
If the market should follow up on Wednesday's sharp gains, which saw the Dow Jones industrial average jump 343 points and the Nasdaq add 81 points, Tellium shareholders could be pleasantly surprised.
Analysts are predicting a decent pop in the stock shortly after it opens, but nothing like the enormous gains other technology stocks enjoyed in 1999 and early 2000.
"I'm expecting maybe a three-quarter or full-point jump, depending on where it finally prices," Menlow said.
Some industry observers say Tellium's offering could provide clues into the IPO outlook for the rest of the year.
"If Wall Street can take a company like this and keep it above its IPO price for a few months, it might be the foundation for a recovery in the IPO market," Menlow said. "We believe the market is giving little hints that the technology market is getting back into synch with investor psychology."
In September, the Oceanport, N.J.-based company filed with the Securities and Exchange Commission to offer 17.5 million shares of common stock at between $13 and $15 a share.
In March, as market conditions continued to deteriorate, it lowered the offering to 15 million shares at between $8 and $10 a share.
Finally, it settled on a 7.5 million-share offering at between $13 and $15 a share following a reverse 2-for-1 stock split in April, effectively turning an IPO that would have raised $260 million in capital to one that will only bring in around $112 million.
According to its filing with the SEC, Tellium had $188.2 million in cash at year's end.
Tellium executives readily admit the company will continue to post huge losses for the foreseeable future. In the last three months of 2000, the company burned through $38.5 million, underscoring the urgency of this initial public offering.
In the first quarter of this year, Tellium posted an operating loss of $52.5 million after a pro-forma 2000 operating loss of $151.3 million.
The company has just three customers: Cable & Wireless Global Networks, Qwest Communications International and Dynergy, which gobbled up Extant for $188 million in September.
Cable & Wireless is locked into a five-year deal to buy a minimum of $350 million in optical switches from Tellium. If, however, the company decides the switches don't stack up to the competition, Cable & Wireless will only be on the hook for $200 million in the next five years.
Qwest signed a deal to buy at least $300 million worth of switches in the next three years. Dynergy will chip in at least another $250 million in the next five years.
What's in an underwriter?
That Morgan Stanley is fronting the deal is interesting because Goldman Sachs was listed as the lead underwriter in Tellium's original S-1 filing in September.
Tellium ditched Goldman Sachs--renowned for its ability to take technology companies public in all types of markets--but hasn't explained why.
Tellium's signature product, the Aurora optical switch, competes directly with Ciena's fast-selling CoreDirector. Ciena is another Goldman client.
In fact, Lawton Fitt, a managing partner and co-head of Goldman's European High Technology Investment Banking group, took a seat on Ciena's board of directors in November, just a couple months after Tellium filed for its IPO.
None of the parties involved will comment on the Goldman Sachs ouster. Thomas Weisel Partners will serve as co-manager of the offering.
Analysts also point out that Tellium's Aurora switch is aimed at a market that Cisco Systems turned its back on when it discontinued the optical router Cisco acquired in its 1999 purchase of Monterey Networks.
"It's very interesting that Cisco said there wasn't a market for this optical switch and now the market is saying there is," said Michael Perica, an analyst at Gruntal & Co. "This is really a rough time for companies to get financing. If they can get this deal done it shows the viability of their products and of the potential of this market.">