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Ikanos launches public offering

Posted by iTech - 2005-10-06

Ikanos Communications in Fremont went public Thursday on the promise of rising sales of its semiconductor chips, which speed the delivery of Internet content into homes by as much as 100 times.

The company raised $69 million in its initial public offering of stock, which was somewhat well received on Wall Street in spite of a slow market for new tech offerings. Ikanos shares started trading at $12 a share and rose as high as $14.25 during the day, but fell back to $13 by the close of trading.

Ikanos is one of a number of companies making chips that enable phone companies to upgrade their networks to offer digital TV over regular phone lines. Phone companies such as SBC Communications have plans to create such networks to fend off rival cable TV companies offering Internet and phone services.

Faster data rates

Headed by Chief Executive Rajesh Vashist, Ikanos was founded in 1999 and has raised more than $100 million in private capital. Initially, it considered making chips known as ADSL, or asymmetric digital subscriber line, which were the standard for moving data through phone networks into homes at speeds of about 1.5 megabits per second. But when that market became overcrowded, Ikanos shot for a higher mark.

The company helped pioneer chips called VDSL1, or very high data rate digital subscriber line, that could move data at 50 megabits to 100 megabits a second through phone lines. It launched its chips in 2001, in the midst of the Internet downturn. But the chips caught on in places where broadband adoption remained strong, such as     South Korea.

Now the competition is heating up for a second version of the chip, dubbed VDSL2, which can transfer data at high speeds over longer distances than VDSL1 chips. Chip makers such as Germany's Infineon, Texas Instruments, Conexant Systems and Broadcom plan to challenge Ikanos, as do smaller players such as Metalink and Centillium Communications. Japan, Germany and France are in the adoption stage now. But the VDSL chip makers have to wait for the phone companies to mobilize in the United States.

``We are seeing the interest growing in all markets worldwide,'' said Imran Hajimusa, senior director of marketing at Infineon in San Jose. ``But overall, it's a tough market because there are a lot of competitors.''

2006 shipments

Teresa Mastrangelo, an analyst at market researcher broadbandtrends.com in Roanoke, Va., said that phone companies will begin trials of VDSL2 networks in 2006 and begin deploying them in the second half of the year.

``Video is without a doubt the driver, as more and more companies and consumers around the world are finding that ADSL is not enough,'' Mastrangelo said.

Earlier this year, Ikanos said it had shipped more than 6 million chips. Ikanos had the bulk of worldwide shipments, according to In-Stat, a market researcher in Scottsdale, Ariz.

In-Stat believes the market will grow to between 40 million and 60 million in 2009. That means the market will grow from around $100 million in 2004 to a multibillion-dollar business.

Ikanos is not yet making money. The company reported that it lost $4.3 million on sales of $31.5 million for the six months ended June 30, compared with a loss of $7.1 million on sales of $30.2 million a year earlier, according to a filing with the     Securities and Exchange Commission.

The company issued 6.4 million shares. The underwriters were Citigroup Global Markets and Lehman Brothers, while Deutsche Bank Securities and Thomas Weisel Partners were co-managers. It was the sixth tech IPO in Silicon Valley this year, compared with nine by this time a year ago.

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