Note: Currencies in US dollars
Foundry Networks Inc. (Nasdaq: FDRY) rocketed up 89, or 356 percent, to 114 in its initial public offering Tuesday. After pricing at $25 a share late Monday, the stock moved as high as $118 a share in early trading.
Analysts have cast the maker of networking products for enterprises and ISPs as the week's most promising initial public offering.
The 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 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.
Unlike most recent IPOs, Foundry is actually profitable. The company booked more than $24 million in sales in its latest quarter, representing growth of up over 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.
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.
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 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.
Foundry faces competition from Cisco, Nortel, and 3Com as well as 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.