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Blade server vendor Egenera, the darling of the financial services community, filed today for an IPO and in so doing revealed some extraordinary financial details.

For years, Egenera has been praised by financial services companies as the answer for high performance computing in tight spaces. The company was founded in 2000 by former Goldman Sachs CTO Vern Brownwell, and the executive clearly knew exactly what financial firms desired in their data centers. Egenera's success has paved the way for what it hopes will be a $125m IPO in which the company will trade on the NASDAQ under the ticker symbol EGEN.

But all is not perfect with Egenera's IPO hopes, as the company acknowledges.

First off, three of Egenera's largest customers - Credit Suisse First Boston, Goldman Sachs and JP Morgan Chase - are underwriting its IPO.

As it turns out, two of these companies - Credit Suisse First Boston and Goldman Sachs - along with another financial services company - Lehman Brothers - accounted for a stunning 89 per cent of Egenera's revenue in 2002. One year later, Egenera managed to add AOL to its customer list, but even then AOL, along with JP Morgan Chase and Goldman Sachs, accounted for 64 per cent of the company's revenue. Did things get better in 2004? Not really. Through the first three months of this year, Credit Suisse First Boston, AOL and JP Morgan accounted for 70 per cent of total revenue.

Egenera was not shy about what this means to investors.

"Because these firms are also some of our most significant customers, and because investment funds affiliated with Credit Suisse First Boston LLC and Goldman, Sachs & Co. are selling stockholders in this offering and will continue to be stockholders after the closing of the offering, it could be perceived that they have conflicts of interest and that, in fulfilling their underwriting responsibilities, their decisions and judgments might be influenced by the potential impact of such decisions and judgments on their other relationships with us," the company said in its SEC filing.

Egenera added that its largest customers likely receive significant price breaks, which might not be in the average investors' best interests.

A cynic might suggest that a well connected executive at Goldman Sachs decided to form a company, pulled some strings to get investment from his buddies and now hopes to profit big from the IPO. An even bigger cynic would suggest the financial services community created a server vendor out of thin air in an almost IPO-on-demand fashion.

Egenera stresses that future success will depend on it being able to expand its customer base, which is a no brainer. But the recent trend from 2003 to 2004 shows it has actually become more dependent on its investors.

Egenera is also not the healthiest company around. It posted a $37.1m loss in 2003 on sales of $41.2m. Still, the company secured another $30m in funding last year - it has secured $124m since 2000.

Egenera followed just behind RLX as the first entrants in the blade server market. Both companies have managed to keep breathing despite heavy pressure from IBM, HP and Sun Microsystems. ®

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RLX tempts yet another investor
Egenera's blades are blooming
HP launches 4-way ProLiant blade servers

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