Force10 Takes $51 Million

Force10 has quietly racked up over $50 million in Series F funding, ostensibly to lay the foundation for a public offering sometime in the next few months.

The 10-Gbit/s Ethernet switch specialist refused to comment on the funding when contacted by Byte and Switch today, although documents recently filed with the SEC reveal that the vendor raised around $51 million in an equity offering to 43 investors.

The cash influx brings the switch vendor's total funding to around $350 million and puts the firm's long-term strategy in the spotlight once again. (See Force10 Orders One More Round.)

This isn't the first time Force10 has gotten big funding amid whispers of imminent IPO. In 2005, Force 10 collected $40 million in funding in what was supposed to be its final round prior to IPO, although the bugaboo of Sarbanes Oxley compliance apparently stalled this effort. (See Force10 IPO Still Hanging.)

At least one analyst believes it will really happen this time -- sooner rather than later. "I have heard, and it has been corroborated by a number of people -- that a filing could be imminent," says Joe Chiasson, equity analyst for telecom equipment at Susquehanna Financial Group. "It may be within the next three months."Certainly, after a lean spell for IPOs, public offerings are becoming much more common, and a growing number of hardware vendors have recently taken the plunge. (See Omneon Preps for $115M IPO, Double-Take, Isilon Go Public, CommVault Swims in Public Pool, and Riverbed Comes Out at $9.75.)

The subsequent financial performance of some of these firms, according to Chiasson, may be pushing Force10 closer to its own IPO. "They have probably seen some other data points out there, most notably what happened with Riverbed and Acme Packet and their IPOs," he says, adding that a chunk of the $50 million is likely earmarked for personnel and facilities costs. (See IPO News: Acme Soars, Neuf Preps .)

But $50 million is a significant wad of cash just to keep a firm ticking over in the weeks leading up to its IPO. Storage vendor Isilon picked up just $10 million in a Series E round a few months before its own public offering. (See Isilon, PolyServe Pick Up Funding.)

At the moment, Force10's financials are being kept under wraps, even though the vendor has volunteered revenue figures in the past. (See Force10 Revs Revenues.)

If it is not readying itself for an IPO, there's the chance Force10 is looking to fend off possible suitors by raising its value. Last year, Nortel was said to be sniffing around the firm in an attempt to boost its 10-Gbit/s Ethernet story. (See Sources: Nortel Could Get Force10.)One analyst thinks it's unlikely Force10 is taking anti-acquisition action. "Anyone that can afford them, probably doesnt need them," says Zeus Kerravala, senior vice president of enterprise research at the Yankee Group, adding that the vendor would probably be out of the price range of other potential acquirers such as 3Com and Extreme.

In Kerravala's view, Force10 is readying its public debut. "I think that they are close to being cash flow positive," he says. "They are a pretty well-run company."

All this raises questions about Force10's market. For months, the vendor's been aiming its switch and router products at enterprise data centers and firms building large server and storage clusters. (See Force 10 Fires Up Low Latency Switch and Force 10 Aims for the Data Center.) The vendor has also been touting its wares as a high-bandwidth, low-latency alternative to InfiniBand. (See The War of Words, InfiniBand of Brothers, IBM's Cluster Bluster, and InfiniBand Natives Stirring.)

Whether 10-Gbit/s Ethernet is catching on, though, is an open question. While most vendors have been slowly adding flesh to the bones of their 10-Gbit/s Ethernet strategies, the technology is yet to establish itself as a mainstream data center offering. (See Is It Time for 10-Gig? and Will Blades Cut Path for 10-Gig?)

The Yankee Group's Kerravala believes, nonetheless, that 10-Gbit/s Ethernet is about to make its presence known. "I think that we will see the 10-Gig market continue to accelerate," he explains, adding that this is driven by two main factors. "TCP offload technology has got good enough to make 10-Gig server connectivity a reality, and the price of 10-Gig optics has fallen."One firm, The InfoPro, is fairly optimistic, reporting recently that 26 percent of firms have deployed the technology in their core networks. (See TIP: 10 GigE to Grow.)

— James Rogers, Senior Editor, Byte and Switch