NetScreen's Screaming IPO

Network security system developer NetScreen Technologies Inc. took what many might call a leap of faith into the uncertain realms of the public market today. The company raised $160 million and saw its shares jump nearly 50 percent after a successful initial public offering.

After being priced by lead underwriter Goldman Sachs & Co. at $16 per share, NetScreen went public and was immediately bid up to $23.76 on the Nasdaq, where it will trade under the ticker NSCN. NetScreen is selling all of the 10 million shares of common stock on offer. Shares closed the day at 23.72, up 7.72 (48.25%), giving it a market capitalization in the $1.7 billion range.

The news was reassuring to the technology startup sector, where some saw hope that the IPO market could be revived and that companies can once again begin to look to raise money in the public markets.

This is great news for the IPO market. A lot of people are excited about it,” says Infonetics Research Inc. analyst Jeff Wilson. “On the startup side, there have been a lot of open wounds over the last couple of months, but life must go on. A lot of companies have been waiting for someone to be courageous enough to make the first move.”

Wilson says he thinks NetScreen’s IPO will definitely influence other network security developers and maybe even rub off on other areas.While most companies wouldn’t dare think about going public in today’s hostile financial climate, the Sunnyvale, California-based company’s reception on the market gives reason for optimism.

Network security is an area that has not only survived but seems to be prospering in the current doldrums. And with its fast, hardware-based firewall and VPN solutions, NetScreen has found its edge in the market.

"There are two areas where we see opportunity for IPOs right now: security and storage," says Harry Blount, senior storage research analyst at Lehman Brothers.

NetScreen, which makes a hardware-based security firewall to lock down high-speed networks, may have reassured the market with its customer list and revenues. For the nine months leading up to June 30, NetScreen reported that its sales rose to $59.2 million, $49.5 of which was product-related, from $14.3 million during the same period in the prior year. Its customers include Cable and Wireless (NYSE: CWP), Cox Communications Inc. (NYSE: COX), and Williams Communications Group (NYSE: WCG).

At the same time as NetScreen’s revenues have grown, however, so have its losses. As of June 30, the company had an accumulated deficit of $84.3 million.Competitors include Check Point Software Technologies Ltd., Cisco Systems Inc. (Nasdaq: CSCO), CloudShield Technologies Inc., Nokia Corp. (NYSE: NOK), RapidStream Inc., ServGate, and Symantec Corp. (Nasdaq: SYMC).

— Eugénie Larson, special to Byte and Switch, and Stephen Saunders, Founding Editor, Light Reading,
http://www.byteandswitch.com