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Force10 Networks files for IPO

10 Gigabit yields 143.8 megabucks

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Cisco Systems doesn't own the networking market. It just thinks it does. In reality, Cisco's shareholders have a large piece of the networking racket, but there is plenty of room left over for other players to get at the trough. And today, Force10 Networks - one of the up-and-coming 10 Gigabit Ethernet networking providers that is not yet making money even as it is making sales - said it is taking an empty wheelbarrow down to Wall Street to get some cash and bring it back to San Jose.

In a prospectus filed with the Securities and Exchange Commission, Force10 said that it planned to raise $143.8m in an initial public offering and would list its shares on the New York Stock Exchange under the symbol FTEN. NYSE actually uses Force10's 10 GE switches, along with products from Juniper Networks and Voltaire, in its data centers in New York and London. And six of the top ten supercomputer clusters in the world use Force10's switches.

Even though the company is not yet profitable - and does not anticipate profits for some time - it is seeking to surf on a wave of network upgrades in the data center as companies move from Gigabit to 10 Gigabit Ethernet as their main means of lashing together servers and users - and sometimes storage. In its prospectus, Force10 quoted data from Dell'Oro Group, which projects that global spending on 10 GE networking gear will grow from $2.8bn in 2009 to $8.5bn in 2014, a 25 per cent compound annual growth rate.

Those numbers are somewhat different from IDC suggestion that Ethernet switching in the data center (as opposed to branch offices and secret government facilities) will rise from $3.1bn in 2009 to $4.3bn in 2013, a compound annual growth rate of 9 percent over those five years. While Dell'Oro and IDC characterize the market differently, both agree that there are many billions of dollars at stake and the growth is better than in many other segments of the IT space.

The Force10 Networks that is going public is not really the same one you think it is. The company that is going public and which now bears the Force10 Networks name was actually founded in 1999 as Turin Networks. In February 2008, Turin acquired Carrier Access to add its wireless aggregation and converged access products to its own carrier-grade Ethernet switches. In January 2009, Turin acquired Force10 Networks, a maker of 10 GE switches and routers aimed at data centers - and ones that focus on density and energy efficiency.

With the three companies mixed together, they have a more complete set of networking products and a combined 1,300 customers. In March 2009, when the latter acquisition was completed, Turin took the Force10 Networks name.

Turin Networks, the foundation company behind Force10, brought in $31.6m in revenues in the fiscal year ended in September 2007, and it had a net loss of $29.5m. Thanks to the acquisition of Carrier Access, Turin Networks was able to nearly quintuple revenues to $155.9m, and it managed to eke out a net income of $5.4m. In 2009, the combined Turin-Carrier business had $119.1m in revenues, but it posted a $54.5m loss. Adding in the effect of the Force10 acquisition in 2009, the three-way company, which took the Force10 name after the deal was done in March, had $199.2m in sales and a $76.3m net loss.

About $114.5m in sales in 2009 came from Ethernet products and $84.7m came from carrier transport products and services. In the quarter ended December 31, Force10 had $61.7m in cash and short-term investments, and the combined companies had an accumulated $161.7m in losses.

The proceeds from the IPO will be used by Force10 as working capital and for general corporate purposes. ®

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