Sycamore Networks Wows the Market With Its Public Offering

Sycamore finished its first day up an astounding 386% as investors rushed to get a piece of the networking company.
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Price be damned.

Investors just had to get a piece of

Sycamore Networks

(SCMR)

, which went public Friday.

Shares of the Chelmsford, Mass.-based builder of fiber-optic network systems shot up to 270 7/8 from an IPO price of 38 -- an increase of over 612%. It chalked the highest first-day increase of the year -- at least for favored clients of underwriters -- then settled to finish at 184 3/4. The fiesta left various investors, analysts and investment bankers slack-jawed on what the market had wrought.

"We have never seen a deal like this -- it was completely off the charts," says an investment banker involved in the deal who requested anonymity. According to the banker, the underwriting banks had requests for more than 240 million shares -- 32 times the 7.5 million shares Sycamore was offering in the IPO. As a result, indications of interest mounted rapidly before lead underwriter

Morgan Stanley Dean Witter

released the shares to hopeful investors.

"When I saw some of the bids

before trading started, I thought it was a typo on my screen," says the banker, adding that much of the bidding was coming from institutional investors. After Sycamore hit its high note on its opening price, the entire underwriting desk gave the company a standing ovation, the banker adds.

"When

Netscape

went public, it broke the speed of sound," says Scott Sipprelle, president of

Midtown Research

, an independent IPO research firm. "Now with Sycamore, we've broken the speed of light." Midtown was not part of the Sycamore underwriting team.

Sycamore is hot because its managers earned their

spurs at

Cascade

, the highly-successful

Cisco

(CSCO) - Get Report

nemesis that is now part of

Ascend

, a unit of

Lucent

(LU)

. Secondly, networking IPOs have soared on their first-day outing and have continued to climb even after the predictable first-day pop.

Investors also figured that because Cisco paid $7 billion for

Cerent

, another optical networking company that was about to go public, Sycamore must also be hot.

"Nobody wants to miss out on the next

Juniper

(JNPR) - Get Report

," says

internet.com

analyst Tom Taulli. Juniper has been one of the best market performers of the year -- up 661% from its offer price based on Thursday's close, according to

IPOMonitor.com

.

Unlike most newly public Internet companies, networking companies have climbed even after the first-day pop.

F5 Networks

(FFIV) - Get Report

is up 792.5% from its offering price, while

Redback

(RBAK)

and

Foundry Networks

(FDRY)

are up 441% and 562%, respectively. They form one of the few sectors that didn't budge during the August slump.

Juniper Soars
Juniper Networks' aftermarket performance since its IPO.

Redback Roars
Redback Networks' aftermarket performance since its IPO.

Sycamore has revenue of just $11.3 million, all from one customer,

Williams Communications

(WCG) - Get Report

. While Cascade built large electronic Internet switches for telephone carriers, Sycamore systems help carriers direct streams of light signals through fiber-optic networks.

"There is a significant shift underway in networks, moving from electrical to optical technologies," says Sycamore CEO Dan Smith, speaking after the IPO Friday. Sycamore will compete with telecom giants such as

Nortel

(NT)

and

Ciena

(CIEN) - Get Report

.

Of course, today's action translates into some outlandish comparisons. Sycamore's $14.4 billion market capitalization now exceeds Juniper's $13.1 billion, and Redback's $5.2 billion. Sycamore trades at more than 1200 times its paltry revenue, compared to Juniper at about 417 times revenue and Redback at 122.

Such mathematical realities didn't stop one dim-witted participant on the

Yahoo! Finance

boards from gushing: "JNPR IS CHEAP AT 260 IF SCMR IS 200-270."

At the close, Sycamore was down some 32% from its top price. On the

Silicon Investor

boards, one giddy poster boasted: "I have 2,000 shares at 269 1/2. Down about $140,000 but that's only on paper. HA HA HA HA HA."