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Start-ups brave industry giants to boost broadband

Two more networking equipment public offerings will test Wall Street's appetite for public companies that produce the gear that makes Internet and voice communications work.

3 min read
Two more networking equipment public offerings will test Wall Street's appetite for public companies that produce the gear that makes Internet and voice communications work.

Sonus Networks, which went public today, and ONI Systems, which is set to go public as soon as tomorrow, both hope to take advantage of Wall Street's love affair with companies that provide the infrastructure equipment for Internet and telecommunications networks. Though the two are tackling different niches in the networking market, their performances on the market are likely to serve as bellwethers for others waiting to go out the door.

Sonus, a maker of switching devices that tie old phone networks to the Net, opened at $32 today after pricing at $23 last night--an increase of about 60 percent. By market close, the company's gains reached more than 119 percent, with the stock trading above $50.

The company's success has been fueled by the notion that telecommunications networks will be forever altered by Net technologies, with all kinds of traffic--voice, video and data--running through a carrier's pipes as Net-based "bits." The broader market has been buoyed by continued demand for faster "broadband" connections among both consumers and service providers.

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Held back for the moment but waiting in the wings is ONI Systems, a maker of optical-based equipment for metropolitan areas. A spokesman for the company said it likely will price its offering this evening, but that could change.

ONI's price range was recently upped from $14 to $16 to $21 to $23, a sign of investor enthusiasm. But with the stock market unpredictable, the company's underwriters have been hesitant to float the shares, pulling back from plans to price them earlier this week.

Other public offerings may soon follow. CoSine Communications, a maker of switching devices for Internet-based services, filed to go public earlier this month. Avici Systems, a maker of high-end routing equipment for the Net, filed to go public last week. Gear-maker Corvis also filed recently.

The wide array of start-ups going public signals continued investor interest in the networking industry. Companies that can focus on a single expertise, it seems, are gaining traction on Wall Street and among customers. Juniper Networks, Redback Networks, Sycamore Networks and Foundry Networks are some of the best examples of this trend, enjoying runaway success based on their particular specialties in the networking industry.

"The networking market has never been characterized by one or


Gartner analyst Joe Baylock says it's not always a question of whether networking start-ups such as Sonus and ONI Systems will survive or fail, but a question of acquisition or independence.

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two players," said Hilary Mine, analyst with industry consultants Probe Research.

As a measure of the reduced expectations of Wall Street, however, this latest round of companies is not likely to fare as well as Juniper, Redback, Sycamore or Foundry, all of whom enjoyed triple-digit gains on their first days of trading. Foundry jumped an astounding 525 percent in its first day of trading last year.

But there have been exceptions. ArrowPoint Communications jumped 250 percent in its first day of trading recently, though that company has since been gobbled up by Cisco Systems.

All of these companies' successes come despite the continued strong presence of huge companies such as Cisco, Nortel Networks, Lucent Technologies and Alcatel, all largely vying for the same customers the start-ups are targeting.

Many of these start-ups aspire to grab a chunk of the runaway demand for optical-based systems to give a speed boost to both long-distance and regional networks. Others, such as CoSine, are focused on what a service provider can do with a high-speed network once they've built it, choosing to focus on telecommunications services that can fill those pipes with traffic.

"(Network infrastructure) is Tune in to CNET News.com TV's IPO
Forecastconsidered a safe haven for investors," Mine said. "Margins traditionally in the networking market are massive. It gets very competitive, but it's a pretty solid market."

Separately, several companies that are targeting various niches of the telecommunications equipment industry but are not yet ready for the public market launched new gear or strategies this week. Among them are Tenor Networks, an optical-based services switch maker; Terawave Communications, an optical-based system supplier for the so-called first mile; and Quarry Technologies, makers of a new carrier-class switch for delivery of software applications.

Chromatis Networks, a competitor to ONI Systems, plans to announce tomorrow that Qwest Communications International will test the start-up's equipment as part of its metropolitan network use.