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Sycamore latest IPO rocket
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October 22, 1999: 5:38 p.m. ET
Stock opens up more than 600%, then slips to close up a mere 386%
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Shares of Sycamore Networks Inc., exceeded even the lofty expectations for its initial public offering Friday, posting the third-best opening result ever.
The stock of the Chelsford, Mass, producer of high speed computer network equipment closed at almost five times its IPO price, turning its multi-millionaire founders into billionaires.
Sycamore, trading on NASDAQ under the symbol SCMR, opened just before 1 p.m. Friday with an IPO price of 38, only to see shares immediately trade at 270-7/8, up 613 percent. They soon settled into a range just below 200, ending the day at 184-3/4, up 386 percent on the day.
That gain left Sycamore behind only two Internet companies, in terms of first day results, according to Thomson Financial Securities Data. On Nov. 12, 1998, theglobe.com inc. (TGLO), closed up 606 percent, and MarketWatch.com Inc. (MKTW), which was up 474 percent its first day Jan. 15, 1999. Both stocks have declined since their initial day's close.
Sycamore originally intended to price the shares at $18 to $20 a share, but Wednesday it almost doubled that range, setting it at $35 to $37 a share. It then exceeded even that range with its opening.
It marked the second hot technology IPO of the week. Crossroads Systems Inc. (CRDS), a provider of computer routers used in storage systems, saw its price rise 337 percent on Wednesday from its IPO price of 18 to close the first day at 78-23/32, making it the fourth best first day gainer at that time. Some of the bloom was off Crossroads' rose by Friday, as it closed at 72-13/16, down 6-7/16, or 8.1 percent off of Thursday's close.
Sycamore is led by Gururaj Deshpande, who previously founded Cascade Communications Corp., a provider of wide area network switches, according to company documents filed with the federal Securities and Exchange Commission. Its president and chief executive Daniel E. Smith, is another Cascade veteran.
The pair sold out to Ascend Communications in 1997 and split millions of dollars worth of Ascend stock. They own about 40 percent of Sycamore's shares between them, according to company filings. The first day's trading left Deshpande's stake worth $3 billion and Smith's worth $2.7 billion.
"Based on the information we had, we thought we priced it appropriately," said Smith. "It's an imprecise science."
Sycamore issued 7.5 million shares Friday, or about 9.7 percent of the total shares outstanding. It raised about $284.1 million before expenses. Underwriters for the IPO were Morgan Stanley & Co. Inc., Lehman Brothers Inc., J. P. Morgan Securities Inc. and Dain Rauscher Wessels.
Reports about Sycamore's IPO had suggested it could trade in the 80-100 range at the end of its first day of trading, but none of the reports suggested the gains that it recorded. Still, the company had generated a lot of excitement on the street.
"This is one of the few IPOs where it's a real paradigm shift in how something is done," Francis Gaskins of IPO Desktop Editor, told Reuters.
Investors were apparently excited by Sycamore's vision of optical networking, which can significantly increase the speed and amount of data that can be transmitted over fiber optic networks.
While Smith said the company's current products are ready for market, the company intends to use a significant portion of its resources from the IPO on further research and development.
"You can never sit still in the technology business. If you do you'll get run over," he said.
So far Sycamore has had only $11.3 million in revenue from a single customer Williams Communications, a leading US-based carrier which provides communications services to other carriers. Smith said the quiet period prevents him from commenting on other potential customers.
Sycamore has posted losses of about $20.2 million from its founding Feb. 17, 1998, through the fiscal year ending July 31, 1999. It said it intends to use the proceeds of Friday's offering for general corporate purposes, including working capital and capital expenditures, and the repayment of certain indebtedness.
 Reuters contributed to this report
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Sycamore Networks Inc.
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