Despite climate, Unisphere still eyes IPO

The company's sales have jumped 274 percent this year compared with last, and its underwriters remain hopeful the company can hit the public markets sometime early next year.

"We remain on file," said Jim Dolce, chief executive for Unisphere. "Officially, we are waiting for more favorable market conditions."

Westford, Mass.-based Unisphere--a creation of German technology giant Siemens--competes in three markets in communications equipment: systems for the management of Internet-access subscribers, routing equipment and Internet-based voice systems. As a result, the company has a variety of competitors, primarily Redback Networks, Cisco Systems, Juniper Networks and Sonus Networks.

The company competes using technology it acquired in April of 1999 when it bought out two start-ups--Redstone Communications and Castle Networks. A third company purchased for its technology, Argon Networks, has thus far reaped nothing for Unisphere and was written off as an $118.5 million "impairment of goodwill" during the 2000 fiscal year. Siemens paid a total of $1.1 billion for the three companies.

The 820-employee Unisphere has posted some enviable sales growth in recent months, according to the company's internal numbers and to regulatory findings. Unisphere's net sales for its most recent fiscal year, which ended Sept. 30, were $185.4 million, compared with $49.6 million for its fiscal 2000. The company also reported a 10 percent sequential increase in sales between its third and fourth fiscal quarters.

"They've definitely achieved the (size) to be a viable public company," according to Michael Funsch, a J.P. Morgan vice president.

Strategy unfolded
Unisphere's roots date back to 1999, when Siemens saw huge dollar signs in a North American network-equipment market that was booming, but largely untapped by the German tech giant. To invade North America, Siemens chose to acquire three start-ups, meld them into one company that included some Siemens telecommunications technology, and use that company to tackle market niches.

Once focused on markets in which it could compete--and free from the debacle that sprouted from the Argon deal--Unisphere has prospered, taking market share away from both Redback and Cisco in significant market niches, according to industry research firms.

For example, in subscriber-management systems, Unisphere has surpassed former market leader Redback. It now is second only to Cisco in the market, garnering a 27 percent share, according to a recent study by Infonetics Research. They've had even more success with their routing devices targeted at the so-called edge of Internet networks. They've garnered a 10 percent share of that market, second to Cisco and ahead of Juniper, according to a study by Dell'Oro Group.

"Cisco's really nervous about them, so that's a good sign," said Hilary Mine, an analyst with industry consultants Probe Research.

Unisphere is also developing higher capacity routing systems to further compete with Juniper and Cisco.

The company's customer list has grown to 142 in number, spanning 30 countries, with 20 new customers being added each quarter, according to Dolce. They include a sprinkling of service providers and corporations from all corners of the globe, from Bloomberg and Cable & Wireless to Deutsche Telekom and XO Communications.

Unisphere recently announced plans to supply AT&T with routing devices for its DSL (digital subscriber line) network.

What makes Unisphere's story compelling is that its development teams have learned lessons from the pioneers in its respective markets. In routing, for example, Unisphere has engineered its "ERX" device to be capable of making all sorts of intelligent decisions about the network traffic that goes through the system, since it is at a burgeoning junction of networks. Competitors, such as Cisco, have tried to play catch-up using older technology.

"It's designed well for the current time," Mine said.

Some have wondered whether Siemens--Unisphere's largest investor--would wield a heavy hand in crafting the company. But Unisphere's Dolce said the German parent has helped the company gain a foothold in international markets quickly, cushioning Unisphere from an ongoing contraction in the U.S. market.

"There are places in the world where significant investment is being made," Dolce said, mentioning China, India and Brazil to name just three. "If you're a U.S.-centric company, you're going to feel the pain.

"We believe we will be one of the survivors."

Unisphere is expected to soon file an updated S-1 public offering statement with its latest sales figures and related news, such as the recent addition of AT&T as a customer. That will extend the window the company has to go public. It initially filed in September of last year.

Unisphere said in its last federal filings that it intends to offer $8.5 million shares to the public at $11 to $13 dollars per share, reaping a nearly $100 million windfall assuming a $12 offering price. Unisphere--once known as Unisphere Solutions--would go public using the ticker symbol UNSP.