Egenera Seeks IPO

Blade server startup Egenera Inc. is ready to go public (see Egenera Files for IPO). Late yesterday, the vendor filed a registration statement with the Securities and Exchange Commission (SEC) to trade its common stock on the Nasdaq under the symbol EGEN.

Egenera has not priced its shares nor set an IPO date, and the company isn't commenting beyond the filing.

On the face of it, Egenera's stradding favorable and unfavorable conditions. Blade servers are heating up. These devices shrink traditional data center machinery, including servers and storage arrays, into modules in a chassis. The box uses virtualization and management software to assign computing resources as needed to applications. The design aims to consoldate data centers and advance the spread of grid and utility computing -- areas on many companies' strategic radar (see Grid Networking, page 7).

But Egenera's up against competition from three big players: Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Sun Microsystems Inc. (Nasdaq: SUNW), each of which has made blade servers a pet project (see Grid Networking). Egenera's actually aiming to displace these players in high-end data centers in the areas of financial services, healthcare, and Internet computing. Mission impossible?

So far, Egenera's held its own. The Marlborough, Mass.-based startup claims greater efficiency and virtualization in its BladeCenter system, which is based on a diskless virtual server that comprises only processor and memory. These claims have been embraced by several significantly large customers, including: AOL, Cambridge Health Alliance, Credit Suisse First Boston Corp., Emory Healthcare, Goldman Sachs & Co., J.P. Morgan Chase & Co., Lehman Brothers, and Savvis Communications Corp. (Nasdaq: SVVS).Some of these big-name customers could prove a liability. In its SEC filing, Egenera acknowledges that since it started shipping products in 2002, it's gotten more than 10 percent of its revenue from one or more of the companies that are now acting as underwriters for its IPO, a trend that could represent a conflict of interest to some potential shareholders: "In the three months ended March 31, 2004, we derived 27%, 18% and 2% of our revenues from sales to Credit Suisse First Boston Corporation, JPMorgan Chase Bank and Goldman, Sachs & Co., respectively," the filing states.

The public markets are also a bit iffy, though certainly improving. Yesterday's entry of Xyratex Ltd. (Nasdaq: XRTX) onto Nasdaq was a tad disappointing (see Xyratex Swims in Public Pool), and some analysts are counseling caution for others scoping IPO. In an unrelated note yesterday, analysts from Bear Stearns & Co. Inc., which doesn't have any relationship with Egenera, wrote to clients that the area of IT hardware, data storage, storage networking, and data center appliances is on the upswing, but "investors should realize that the business cycle is past the inflection point at the bottom, implying that their focus should be on leaders such as Dell, EMC... (as opposed to looking for highly leveraged stories)."

Egenera qualifies as leveraged: It has raised $124 million in venture funding since its 2000 inception, including $30 million in a recent round (see Egenera Generates $30 Million). It got a new CEO this year, Bob Dutkowsky (see Robert M. Dutkowsky, President, CEO & Chairman, Egenera).

In the first three months of 2004, Egenera posted $20.3 million in total revenue, a 194 percent year-on-year increase. It had $25 million in cash and $128 million in accumulated deficit. Its overall gross margin was 33 percent, gross profit $7 million, and net loss $19 million.

Mary Jander, Site Editor, Byte and Switch0