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Turn Around Series: Jerry Rawls, Finisar (Part 6)

Posted on Tuesday, Mar 13th 2007

A very interesting discussion of the dramatic times during the late 90’s and the early 2000 timeframe. Read on.

SM: What were your sales pre-IPO? JR: I think in the ’98 period they were probably $30M. Our fiscal year 2000, which is when we went public, was $67M. In January of 1999 the IPO market came back.

We did a bake-off with all of the bankers and selected Merrill Lynch to be our lead, and we scheduled and started working towards an IPO in October. It was a really successful IPO, we went public at $19, the stock traded as high as $106 on the opening day, and closed at $89. We were the seventh largest increase on the first day of trading in the history of all the US stock exchanges. Our market cap was well over a billion dollars. I think our peak market cap in those days was as much as $5B.

SM: Are you talking about a $67M revenue with a $5B market cap? JR: Yeah, it was pretty unbelievable. Our sales in that fiscal year were $67M, and then our sales in the next fiscal year were $188M. So, we grew a lot in that year, but the world was booming still.

SM: And then it collapsed.JR: The whole market collapsed in 2000, 2001, and all of a sudden it was a whole new brand of reality. In early 2001, it was an unbelievable time, our sales were growing 30% a quarter. We could not find buildings to rent in Sunnyvale, we could not hire engineers fast enough, and our suppliers could not keep up with us.

Then the collapse happened, our peak quarter was $65M in sales, that was Q3 ’01, which is the quarter which ended in January 01. In two quarters our sales dropped 47%, and that sounds horrible, but in the same period Nortel’s optic division sales dropped 98%, and Lucent’s optic division dropped more than 98%, and in the end Nortell literally gave their optical division away.

SM: Did you have an option to buy that? JR: We did, but we decided that the amount of money it would take … remember this is an organization that had 1400 people, and at its peak it had well over 2,000 almost 3,000 people and it had $1.4B in sales in its peak quarter.

Remember the crazy thing is Corning, in ’99, had offered Nortel $100B in cash to buy this division. They turned it down because they thought it was not enough money. Now, in two quarters, their sales dropped from $1.4B to $23M. It was a crash that nobody could manage their way out of, all you could do was try to unload it, get rid of the division and make somebody else deal with it. Nortel came to us and had chosen Finisar as being in a complementary industry, and said that they would like to have us manage this division and have us be a supplier to them, because they knew they had all of these sole source products designed into Nortel systems which were built in this division.

[Part 14]
[Part 13]
[Part 12]
[Part 11]
[Part 10]
[Part 9]
[Part 8]
[Part 7]
[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 6 in the series : Turn Around Series: Jerry Rawls, Finisar
1 2 3 4 5 6 7 8 9 10 11 12 13 14

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Hmm…
IPO price of $19 and first day settling at $89. Sorry, thats not a success. Its called a swindle… Assuming a less-than-efficient IPO pricing of $70, thats $50/share free money given to the ibank’s favorite funds.

Who am I to complain. The concept has been imported into BSE completely.

Arun Jacob Tuesday, March 13, 2007 at 10:28 AM PT

That’s assuming that you can anticipate the price of $89 at IPO. You are forgetting, that during that time, people were still just trying to gauge what the market had apetite for. And even now, that holds true.

Sramana Mitra Tuesday, March 13, 2007 at 11:05 AM PT

Hi Sramana

I am not saying that the IPO price should have been 89 or very close to that. In that case, the money left on the table for the funds would have been 70$/share, not the 50$ i quoted.

But the iBank is actually being paid for:
– Handling the IPO process and legalities
– More importantly, ensure the best price for the client (the firm going public)

When you have such a big gap between what the market was willing to pay and the IPO price, the people selling the shares in the IPO left an easy bundle on the table.

Arun Jacob Tuesday, March 13, 2007 at 12:07 PM PT

I know what you are saying, Arun. I wasn’t monitoring this particular IPO at the time, so hard to tell the precise situation. But those really were crazy, giddy days. I can tell you, in October 1999, we were all in the midst of utter optimistic confusion. Knowing Jerry’s personality, I’d venture to guess, he was probably cautious, anticipating the market to pull back anytime.

Sramana Mitra Tuesday, March 13, 2007 at 12:15 PM PT

I agree with Arun. It’s clear that the ibanker either was in complete dereliction of duty when it came to pricing the IPO or on the take. My guess it is a combo of both. Anything else is revisionist history.

Born yesterday Sramana?

Andrew Schmitt Tuesday, March 13, 2007 at 2:17 PM PT

Andrew,

I tend to focus on the inspiring stories of the entrepreneurs who navigate turbulent waters, not on the depressing scams.

Hence, I have not investigated the details of the IPO price, and at some level, don’t really care. Read the rest of the story in the coming days, and you’ll see why the entrepreneurs’ story is worth telling.

For me, the rest is incidental.

Sramana

Sramana Mitra Tuesday, March 13, 2007 at 5:47 PM PT

All-

I remember quite well the pricing call. We were each asked what we thought the closing price would be the next day and nobody (but me) thought it would be over $35. Some were as low s $25. Our board were seasoned but not ready to believe what then did happen. No one thought it would go so high.

Frank Levinson

Frank Tuesday, March 13, 2007 at 8:18 PM PT

Sramana – it is a great story and I am enjoying it. I’m not trying to highlight the negative. Finisar is far from alone in not receiving a market price. I felt you were displaying a little naivete.

I am not pinning this on the company. It’s just clear to me that the bankers didn’t do their job right. The market result proves the IPO was mispriced. The folks who issue IPOs are well compensated to make sure they maximize returns. They failed here. It is only the cause of this failure that remains in doubt. Subsequent investigations into how IPO shares were allocated by brokerage firms clearly show massive conflicts of interest existed.

I’m sorry if I took away what otherwise is a really good story. Unlike most companies of the era, Finisar clearly was not one of those shake-and-bake component or equipment houses.

Andrew Schmitt Wednesday, March 14, 2007 at 8:27 AM PT

[…] [Part 6] [Part 5] [Part 4] [Part 3] [Part 2] [Part 1] […]

Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 7) Wednesday, March 14, 2007 at 8:49 AM PT

Hi Andrew,

As you can see from Frank’s comment, I was not being naive at all. They just didn’t anticipate those numbers.

However, if you talk about us, the operating side, being somewhat naive about the various scam best practices on the finance side, then yes, I’m pretty naive on those topics.

🙂 Sramana

Sramana

Sramana Mitra Wednesday, March 14, 2007 at 10:40 AM PT

[…] 9] [Part 8] [Part 7] [Part 6] [Part 5] [Part 4] [Part 3] [Part 2] [Part […]

Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 10) Saturday, March 17, 2007 at 8:07 AM PT

[…] 10] [Part 9] [Part 8] [Part 7] [Part 6] [Part 5] [Part 4] [Part 3] [Part 2] [Part […]

Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 11) Sunday, March 18, 2007 at 6:25 AM PT

[…] 11] [Part 10] [Part 9] [Part 8] [Part 7] [Part 6] [Part 5] [Part 4] [Part 3] [Part 2] [Part […]

Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 12) Monday, March 19, 2007 at 6:30 AM PT

Unless I am grossly mistaken, the Corning/Nortel deal was a stock swap, not cash. $100B in cash can’t be right.

Andrew Schmitt Monday, March 19, 2007 at 10:42 AM PT

Yes, confirmed… was in WSJ.

https://www.lightreading.com/document.asp?doc_id=1236

Andrew Schmitt Monday, March 19, 2007 at 10:44 AM PT

[…] Rawls, CEO of Finisar (FNSR), recounts the talks between Nortel (NT)  and Corning (GLW) to sell Nortel’s optical component […]

Nortel, Corning, and the $100B Deal That Wasn’t at Nyquist Capital Monday, March 19, 2007 at 11:01 AM PT

Andrew,

What jerry refers to is the working capital required to run a business that is bleeding cash at the rate the Nortel business was bleeding, with 3,000 people. His point is, that Finisar did not want to take that kind of a debt burden on.

Sramana

Sramana Mitra Monday, March 19, 2007 at 11:02 AM PT

[…] 13] [Part 12] [Part 11] [Part 10] [Part 9] [Part 8] [Part 7] [Part 6] [Part 5] [Part 4] [Part 3] [Part 2] [Part […]

Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 14) Wednesday, March 21, 2007 at 6:46 AM PT