Unless there is a dramatic change in IPO filings, investors will have slim pickings this year when it comes to VC-backed computer hardware companies.
Through January 22, there were only eight VC-backed hardware companies that had registered to go public. On the bright side, however, they are all relatively recent filings that have not spent months languishing in registration like those from the software and Internet-specific sectors.
“A much bigger consideration for investors now is for companies to be near or at profitability. That was lost over the past couple of years,” said Steven Tuen, research director at IPO Value Monitor.
Parsippany N.J.-based PNY Electronic (Proposed NNM:PNYT) could prove to be the most attractive VC-backed computer hardware company in the IPO pipeline, with 1999 net earnings of $12.374 million off of revenue of $273.571 million. In the first nine months of 2000, PNY had increased its earnings by more than 66%. This could prove to be a pivotal figure for the company, as investors have become evermore stringent over recent months in their demands for profitability. The manufacturer of memory expansion products received its only VC-backing in 1995, from Goldman Sachs, and will be lead managed in its IPO by Lehman Brothers. The company has set its initial price at $13 to $15, which is the most aggressive filing range of any of its VC-backed computer hardware peers, and is looking to raise $143.8 million.
Also posting respectable financials is Beaverton, Ore.-based Cascade Microtetch (Proposed NNM:CCMT), which develops and manufactures silicon wafer testing tools. With $51.53 million and $31.86 million in revenue for 1999 and the fist six months of 2000, respectively, Cascade posted profits of $2.474 million and $1.833 million. The company’s third and last private equity round was completed in December 1999 from Agilent Technologies, Mariseth Ventures, Teachers Insurance and Annuity Association. Cascade will be lead managed by SG Cowen.
The company has not yet set a pricing range, but will try to raise $69 million when it goes public.
Monolithic System Technology (Proposed NNM:MOSY) has spent the longest time in registration, having originally filed its S-1 on August 4, 2000. The Sunnyvale, Calif.-based company, which develops, licenses and markets memory technologies used by the semiconductor industry and electronic product manufacturers, will be led to market by the newly united J.P Morgan Chase. The company has hardly relied on venture funding ? it received its last round in 1989 from Gateway Associates — and posted losses of more than $2.3 million in 1998. The company has since rebounded, however, with 1999 profits of $142,000 off of $15.356 million in revenue. Through the first nine months of 2000, Monolithic posted a further $359,000 in profits off of $9.03 million in revenue. While that may sound like small change, it could be enough to attract investors, especially when the financials are juxtaposed against the scores of other registered companies flailing in the red.
A pair of other J.P. Morgan Chase-led companies have not been as fortunate. Both based in San Hose, LogicVision (Proposed NNM:LGVN), and Tessera Inc. (Proposed NNM:TSRA) posted 1999 losses of $8.098 million and $17.777 million, respectively. The former, which builds test circuits for semiconductors and other electronic components, closed its last round of funding, $15 million, Jan. 28, 2000, and counted Citicorp Venture Capital, Needham & Co. (now a co-manager on the IPO deal), and US Trust Private Equity among its VC supporters. Tessera, which develops and licenses semiconductor packaging technology, closed its most recent funding round, $29.40 million, last June, and counted CSK Venture Capital, Costine Associates, Landmark Partners, Ticonderoga Capital, and six more firms as backers.
The biggest VC-backed computer hardware deal on the radar is Somerset, N.J.-based MultiLink Technology (Proposed NNM:MLTC), which designs and manufactures integrated circuits, modules and boards. The company, which will be lead-managed by Credit Suisse First Boston, has yet to set a pricing range, but plans to raise some $150 million. Like Monolithic, MultiLink too has inched over the profitability line, earning $25,000 in 1999. The company did however also post losses of $4.682 million through the six months ended June 30, 2000, which it attributed to non-cash charges of $2.2 million related to deferred stock compensation and $6.5 million related to warrant issuances. Its most recent financing round was closed last May, with IBM, Meritech Capital Partners, Redpoint Ventures, TRW Inc., and one undisclosed investor combining for $40 million.
The newest VC-backed computer hardware-related company in the IPO pipeline is Santa Clara, Calif.-based SiRF Technology (Proposed NNM:SIRF), which filed its S-1 on October 6. It is also a serious money-loser, with $15.386 million in 1999 losses, and $11.84 million in losses through the first nine months of 2000. The company, which manufactures semiconductors, chip sets, and software solutions for GPS systems in laptop computers and wireless phones, has had 11 VC-outfits contribute to its cause, including Ayala Internet Ventures, Hitachi America, and Mitsubishi Corp. Led to market by Morgan Stanley Dean Witter, the company has set an initial price range of $10 to $12.
Joining SiRF in the negative column is Intellon Corp. (Proposed NNM:ILON), which lost more than $7.5 million in the first nine months of 2000. Lead-managed by Merrill Lynch & Co., the company will try to raise $100 million with shares currently priced $11 to $13. From 1994 through 1999, the integrated circuit developer raised nearly $39 million with the help of seven different investors, including AMP Inc., Boston Capital Ventures, Crescendo Venture Management, Fidelity Venture Associates, Kinetic Ventures, TL Ventures, plus one undisclosed firm.
Omar Sacirbey is managing editor of The IPO Reporter, and can be contacted at