Wintegra - Good Company, High Valuation

Get ready to party like it’s 1999 - Wintegra, Inc. (WNTG), a network processor company, is going public. Prospectus here. Financial summary here.

Wait - the mob cries “This Time It’s Different” - Wintegra doesn’t make those ridiculously large 10G and 2.5G NPU’s that tech messiah George Gilder preached were the salvation of the coming optical revolution. (He still does, BTW - what is EZ-Chip paying this guy?). No, Wintegra’s NPUs are for the access network, Fiber to the home, DSL, i.e. the current pump-and-dump sector for Telecom.

Wintegra couldn’t have picked a better time to go public. Investors are frothy about the build-out of broadband in the last mile and their story plays squarely into this.

Disclaimer: I haven’t read the prospectus in detail. Wintegra will have 22 Million shares outstanding following the IPO. At a target price of $15 that yields a market cap of $330M. When Passave was acquired by PMC-Sierra (PMCS) for $300M it had twice the revenue (14M vs. 7M Q106) and similar gross margins. More importantly, Passave had a massive structural advantage in the fact they basically had locked up the supply of chipsets to NTT, who is the biggest consumer of FTTH access equipment by far.

Wintegra, on the other hand, faces a structural disadvantage in the fact that large OEMs HATE locking themselves into a single vendors NPU architecture. Cisco is the best example of this - they do ASICs themselves, and you’ll note that in the prospectus they went from being a 27% customer in 2003, to a 17% customer in 2004, to less than 10% in 2005.

In my simpleton view of the world, companies fall into one of four categories. Tech is no exception.

1. Good Company, Low Valuation
2. Good Company, High Valuation
3. Bad Company, Low Valuation
4. Bad Company, High Valuation