Holy grail earns US start-up the biggest IPO in history

How does a communications technology company which boasts just three customers and one product line, achieve perhaps the largest ever stock-offering by a start-up company?

By offering the network equivalent of the holy grail - vastly increased bandwidth from existing fibre pipes.

Ciena Corp., of Maryland, completed its initial public offering February 7. On the first day of Nasdaq trading, the company's stock value jumped from US$23 to $37, giving it a market value of $3.44 billion. Ciena's stock closed at $38.75 Tuesday night.

"It seems they've been rather successful," says John Dinsdale, chief analyst of the worldwide telecommunications group at Dataquest Corp.

Ciena's success is apparently a result of its specialisation in a technology known as Dense Wavelength Division Multiplexing (DWDM), which the company says can increase the capacity of fiber optic networks by up to 16 times.

Ciena will not discuss its IPO at present, because the company is in a 30 day "quiet period" required by the US Securities and Exchange Commission following public offerings.

For its most recent financial quarter, ended January 31, the company posted net income of $21.2 million on revenues of $53.9 million. Ciena has projected revenues of $200 million for the current fiscal year.

The company's only customers, according to its IPO prospectus posted on the Internet, are LDDS WorldCom and Sprint Corp. The company also has a distribution agreement with Teleway Japan Corp.

Nor does the market's confidence in Ciena stem from its being a sole provider of this type of technology. Lucent, NEC. and Siemens AG are among several competitors offering equipment that performs a similar function - and one or two offer DWDM.

Nevertheless, the company has radiated sufficient confidence to entice investors.

"Their timing has been good," Dinsdale says. "The Internet is a very sexy market at the moment, and even if you don't know much about telecommunications you know at least something about the bandwidth problem. They offer a technology with a very bright future."

Ciena's sole product line, the Multiwave 1600 system, began carrying live traffic for the Sprint network in October 1996. Dinsdale said the technology as yet is only partially proven.

"It's a grey area ... Some engineers say its a proven technology, but it depends who you speak to," he says.

Ciena, located Savage, Maryland, can be contacted on the Web at http://www.ciena.com/.