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Avanex paces IPOs with huge gain

Avanex Corp. (Nasdaq: AVNX) surged 136 to 178 in its Nasdaq debut Friday. Six million shares priced at $36.

The company raised its price range to $28 to $30 a share from $13 to $15.

Avanex, which makes processors for optical networks, is likely to be among the hottest initial public offerings of the day. Morgan Stanley is underwriting the IPO with an assist from Lehman Brothers, Robertson Stephens and US Bancorp Piper Jaffray.

The company should do well because its positioned in one of the hottest markets -- optical networking. Optical networking related companies such as Sycamore Networks (Nasdaq: SCMR), JDS Uniphase (Nasdaq: JDSU), which just acquired E-Tek Dynamics (Nasdaq: ETEK), and Ciena Corp. (Nasdaq: CIEN) have all posted nice runs recently.

In regulatory filings, Avanex said its photonic processors boost performance and miniaturization, reduce complexity and increase cost-effectiveness as compared to current alternatives.

As for the financials, Avanex revenue is light, but growing quickly. For the six months ending Dec. 31, the company reported revenue of $10.9 million. In the same period a year ago, the company didn't have any revenue. Losses for the six months ending Dec. 31, were $19.8 million. As of December 31, the company had an accumulated deficit of $50.2 million.

"We began operations in October 1997. Until April 1999, we were a development stage company, and our only activities were research and development," the company said in filings.

Like most companies in this sector, Avanex's revenue depends on a small number of customers. Three customers accounted nearly all the company's revenue for the last three quarters. MCI Worldcom (Nasdaq: WCOM) accounted for 92 percent of sales for the quarter ended October 1 and 85 percent for the quarter ended December. 31.

MCI WorldCom, via its venture fund, will also own a stake in Avanex following the IPO as will Microsoft Corp. (Nasdaq: MSFT).

Avanex cited Lucent Technologies (NYSE: LU), Nortel Networks (NYSE: NT), Alcatel (NYSE: ALA), , Fujitsu, JDS Uniphase and E-Tek Dynamics as competitors. In December, E-Tek filed a lawsuit against Avanex for unfair hiring practices.