525 percent! Foundry IPO rockets

UPDATED 3:40 PM PTFoundry Networks Inc. closed up 131 1/2, or 525 percent, to 156 1/4 Tuesday in its initial public offering.

UPDATED 3:40 PM PT

Foundry Networks Inc. closed up 131 1/2, or 525 percent, to 156 1/4 Tuesday in its initial public offering. After pricing at $25 a share late Monday, the stock moved as high as 166 9/16 in early trading.

Analysts had cast the Sunnyvale, Calif.-based maker of networking products for enterprises and ISPs as the week's most promising initial public offering. After the market closed, some were still shaking their heads.

Vince Slavin, analyst at Cantor Fitzgerald, said: "(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."

Foundry's price range was raised Monday from an original estimate of $12-$14 a share. Deutsche Banc Alex Brown is the lead underwriter for Foundry's (Nasdaq:FDRY) IPO. Merrill Lynch and J.P. Morgan are co-managers for the deal.

One of Foundry's main competitors, Alteon WebSystems (Nasdaq:ATON) blasted up close to 300 percent on its first day. Both Alteon and Foundry make products that help enterprises and Internet service providers handle network traffic.

One major difference
Unlike most recent IPOs, Foundry is actually profitable. The company booked more than $24 million in sales in its latest quarter, representing growth of more than 900 percent from the same period last year. The company had net income of $3.3 million on revenue of $39.5 million for the six months ended June 30. In the same period a year earlier, Foundry had a net loss of $4.2 million on revenue of $4.2 million.

Foundry Networks CEO Bobby Johnson just wanted to get back to work Tuesday afternoon.

"Everybody else was excited (about the IPO), but I was anxious," he told ZDNN. "We've just got a lot to do. I'm trying to keep people focused. Everyone's done a pretty good job with that ... getting back to work."

"We were really focused on having a quality IPO, and what's unique is we've focused on real revenue and profitability.

"Business is healthy. We're very comfortable with analyst expectations. There's plenty of opportunity for expansion in this industry," Johnson said.

And were the company's employees, who all have stakes in Foundry, happy with the day's trading?

"You better believe everybody's happy, but they're all back to work," he said.

'It can't miss'
Francis Gaskins, editor of the Gaskins IPO Desktop, said Foundry is the best IPO company he has seen this year. "This one simply can't miss," he said of the company that is the only one yet to receive an A+ rating from him.


'Business is healthy. We're very comfortable with analyst expectations. There's plenty of opportunity for expansion in this industry.'
-- Foundry Networks CEO Bobby Johnson

Foundry is poised to tap a growing market. The company uses customized semiconductors, known as application-specific integrated circuits, to provide switching products that offer better performance at a lower cost than traditional routers.

Its Layer 2 and Layer 3 switches provide the increasingly sought-after bandwidth. Its Layer 4-7 switching products allow enterprises and Internet service providers to direct traffic flow and offer their customers differentiated, fee-based services.

The Layer 3 LAN (local-area network) switching market will grow to $3.9 billion in 2002, up from $637 million in 1998 according to the Dell'Oro Group. The Layer 4-7 switching market will grow to $1 billion in 2002, up from $130 million in 1998 according to Collaborative Research.

"It's infrastructure," said Tom Taulli, senior analyst at Internet.com, about Foundry's appeal. "The fall in the market is a temporary thing. The Internet is going to explode no matter what, and these companies have the tools to deal with it."

IPO money still to be had
"People are now looking at what technology the big guys need," said Alex Cheung, senior portfolio manager at Monument Internet Fund. He added that Foundry's performance suggested that there was still money in the market for IPOs.

Foundry faces competition from Cisco, Nortel and 3Com, as well as from other smaller public and private companies, according to filings with the Securities and Exchange Comission. Cisco maintains a dominant position in the networking market, and offer many products that compete directly with Foundry's.

In 1998, Foundry's biggest customer, Mitsui & Co., accounted for 21 percent of revenue. For the six months ended June 30, 1999, America Online, Hewlett-Packard and Mitsui accounted for 17 percent, 15 percent and 10 percent of revenue, respectively.

Foundry's management includes founders and management of Centillion, a LAN switch manufacturer that was sold to Bay Networks, now a part of Nortel. Since this management group is "from the industry," it makes Foundry all the more "exceptionally hot!" according to Gaskins.

Reuters contributed to this report.

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