Turnstone soars in first trading day

Turnstone Systems (Nasdaq: TSTN), a provider of digital subscriber line services for local exchange carriers, closed up 68, or 234 percent, to 97 Tuesday in its initial public offering.

Turnstone priced its 3 million shares at $29 a piece, well above their range of $23 to $25 each.

Turnstone raised its price range from $15-$17 per share on Friday.

There will be about 29.3 million shares outstanding in the company after the offering, putting the company's initial market capitalization at almost $850 million based on a $29 per share initial price.

Lead underwriter Goldman Sachs and co-managers Dain Rauscher Wessels and Robertson Stephens have the option to purchase an extra 450,000 shares in the event of heavy demand.

Turnstone competes with recently public offerings Tollgrade Communications (Nasdaq: TLGD) and Copper Mountain (Nasdaq: CMTN), as well as established players such as Lucent Technologies (NYSE: LU) and Nortel Networks (NYSE: NT).

Judging by the IPO success of its competitors, Turnstone looks promising. And the company has actually turned a profit; for the year ended Dec. 31, 1999, the company reported $27.2 million in revenue with a loss of just $183,000. In 1998, the company reported no revenue.

Turnstone also has solid partnerships. The company has an original equipment manufacturer agreement with Lucent, which accounts for 15 percent of sales. The company's short customer list includes Rhythms NetConnections (Nasdaq: RTHM), which accounted for 41 percent of Turnstone's sales for the year; Network Access Solutions (Nasdaq: NASC) with 19 percent of sales and Covad Communications (Nasdaq: COVD) with 11 percent.

Risks associated with Turnstone include its reliance on just one product; Turnstone said its future success relies on the success of its CX100, the only volume product that it currently offers. The Copper CrossConnect CX100, which shipped in the first quarter of 2000, is installed in telephone company central offices by competitive local exchange carriers, or CLECs, to speed their deployment of DSL services.

As more players enter the market, Turnstone might also see some pricing pressure, but it?s a small risk considering the company's rapid revenue growth and profits. In its first full year of operation, it took Turnstone only two quarters to turn a profit. In the third quarter, Turnstone reported a profit of $988,000 on sales of $9 million. In the fourth quarter, Turnstone had a profit of $1.07 million on sales of $12.5 million.

Larry Dignan contributed to this report.