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IPO success breathes new life into networking

In a sign of renewed strength in the networking industry, Foundry Networks hammers out one of the best ever public stock debuts as its shares spiked more than sixfold.

In a sign of renewed strength in the networking industry, Foundry Networks hammered out one of the best ever public stock debuts today as its shares spiked more than sixfold.

With a 525-percent increase, Foundry became the second-largest first-day percentage gainer in memory--analysts believe only community Web site posted a bigger gain on its debut last November.

Yet Foundry is only the latest in a string of upstart network equipment companies that have had strong IPOs--and are quickly challenging more established firms in the industry. Until recently, the best hope for many start-ups seemed to be an acquisition by the likes of Cisco Systems.

But with the Internet creating an explosion of demand for network bandwidth, there appears to be room for several new players--marking the first time since the early 1990s that a succession of firms has been able to find success on Wall Street.

Companies such as Foundry, digital subscriber line (DSL) equipment manufacturer Copper Mountain Networks, and gigabit router maker Juniper Networks, among others, all have capitalized on the hype surrounding the Internet.

Analysts believe Foundry's phenomenal debut is somewhat inexplicable.

"[Foundry] is not like anything I've ever seen before, and you are never going to see it again in this century, so enjoy it while you can. I don't understand it, and I don't know if there are too many people who really do. That's the scary part of it," Vince Slavin, analyst at Cantor Fitzgerald, told Reuters.

Other networking start-ups also have fared well with IPOs this year.

For example, Juniper shares jumped nearly 200 percent in June while Copper Mountain saw its stock rise more than 230 percent earlier in May. RedBack Networks also had a strong IPO this year.

Foundry was the last major firm to break out from a large crowd of gigabit-speed Ethernet networking firms, many of which were either acquired or went public.

"[With this IPO] they've implicitly told the networking business that Gigabit Ethernet is here to stay," said David Menlow, president of the IPO Financial Network. "They're really raising the bar."

Foundry's success stems, at least in part, from its position as an already profitable company. The company posted a profit of $3.3 million, or 6 cents a share, for the first six months of 1999, according to regulatory filings.

But some analysts warn that the market will not produce all-star IPOs forever.

"The market will hit a point of saturation and investors will look for the next mini-subset," Menlow said. "But for now the timing is right."

Reuters contributed to this report.