iAsiaWorks on Track For Nasdaq Listing

iAsiaWorks, an ISP that''s trying to morph into a web-hosting company, is hoping for a successful IPO on Nasdaq next week.

iAsiaWorks, an internet services provider that's expanding into web-hosting and data management, is on track to price shares in itsáinitial public offering onáNasdaq at between $13 and $15. The final price will be announced 2 August.

The San Mateo-based company, whose Asian headquarters are in Hong Kong, is offering 9 million shares in the hope of raising as much as $135 million.áThe sale is being managed by Goldman Sachs, Morgan Stanley and Salomon Smith Barney. After the sale iAsiaWorks management will hold 63.5% of the company. The public willá holdá 36.5%. The underwriters have the option of buying 1.34 million additional shares if demand exceeds supply.

The company offers internet access, web-hostingáandánetwork management services to non-Asian companies seeking to build an online presence in the region and to Asian customers seeking to expand into other parts of the region or into the US.

áiAsiaWorks began operation in 1997 as an internet service provider under the name AUNET. In July 1999 it changed its name, revised its business strategy and recruitedáJoAnn Patrick-Ezzell, formerly chief executive of AT&T Asia-Pacific, as its chief executive. It has dataácentres in the US and in 11 countries in Asia. It plans to spend money raised from its IPO to build more. Analysts say itÆs a promising industry to be in.

"One thing that investors are interested in is infrastructure plays," says Jay Chang, an analyst at Credit Suisse First Boston. "But the company still has to proveáit has the right strategy and the right management to succeed over the long term."

Data centres

iAsiaWorks decided to migrate into the dataácentre and web-hosting business in the middle of last year. A dataácentre is typically anáair-conditioned building equipped with under-floor cabling, electricity generators, racksáto house servers, vaults and switches that connect to the internet, providing 'bandwidth' to different customers. Bandwidth is a measure of the amount of data that can be piped through a telecommunications wire or cable over a given amount of time.

AnáiAsiaWorks customer can store and retrieve dataáfrom anáiAsiaWorks server instead of storing andámaintaining that data inhouse. Or it caná'park'á- or co-locate - its own server in anáiAsiaWorks data centre. A server is a computer that manages functions on a corporate or government network, such as storing files or managing printers.áIt stores the files needed to create a website.

In the year ended 1999, more than 95% ofáiAsiaWorks'árevenue came from internet access fees. Just 4.4% came from web-hosting and co-location services. In the quarter ended March 2000, 74.8% of its revenue came from internet access, while hosting and co-location revenue comprised 25.2%. The company predicts that by the end of 2002, at least 75% of its revenue will come from web-hosting, co-location and managed services.

"Asia's web-hosting market will, in our view, evolve rapidly," analysts at Goldman Sachs wrote in a recent report. "The next 12 to 24 months will create many investment opportunities, but the likely winners from the hosting explosion will be companies that move first, have a regional strategy, focus on quality, manage theirádotcom exposure, and partner with leaders."

Tough competitors

iAsiaWorks' competitors in Asia includeáAsia Online, a Hong Kong-based internet services provider with 10 dataácentres in different cities across Asia. Asia Online is also expanding its dataácentre and web-hosting business, and it's also building a network systems integration business - that is, it puts together computer networks for institutions, governments andáother companies using technologyáprovided by third parties. It is also determined to make its mark as an applications services provider,áby buying software applications wholesale and providing them on to customers.

"Asia Online is really diversifying itself," saysáRamin Marzbani, senior analyst at Consult.com.au, an internet research company in Sydney. "Web-hosting on its own isn't going to hold its own for any of these companies. They need to have a diversified revenue stream."

Another Hong Kong-based competitor is i-Link.net. i-Link operates two 20,000-square-foot dataácentres in Hong Kong and is planning four more of the same size in Shanghai, Beijing, Taiwan and Singapore. While still small, it has the all-important backing of Pacific Century CyberWorks, the internet company owned by local tycoon Richard Li. i-Link is a joint venture between PCCW andáDotCom Pacific. As well as providing network management and hosting services the company also plans to rent out software applications and become a commercial internet traffic exchangeácentre in the region.

Also getting into the game are WebCentral, a web-hosting company owned by Ozemail in Australia, and iAdvantage, a subsidiary of Hong Kong-based Sunevision, an infrastructure technology and investment company.áiAdvantage operatesátwo dataácentres in Hong Kong. It's also building new facilities in China and a new facility in Singapore, bringing its total capacity to 600,000 square feet. Big foreign companies such as Exodus Communications of the US are also movingáinto the region.

Though competition will be intense, the growth of the market will mean more than one can survive, says Richard Jacobson, senior internet analyst at International Data Corporation, a research company. "The speed at which the internet is growing, and the amount of data out there, means demand for storage space alone is just phenomenal."

Queen's ransom

iAsiaWorks may be new to the game but it's not holding back in paying up to attract managers it believes can appeal to investors. In recruitingáJoAnn Patrick-Ezzell, 46, an AT&T executive forá24 years, the company is pinning its hopes on her 'brand' recognition. The board agreed to pay her $500,000 a year, plus a $100,000 signing bonus (in the form of a loan which is forgiven after a year of service). She also received 'perquisites' to the value of $50,000, of which $35,250 was for housing expenses and $13,376 for a car. She will also get an annual bonus of not less than $100,000.

Patrick-Ezell has also received 1,992,329 stock options, or 52% of all stock options granted to the company's 210 employees. The options can be exercised at $0.45 a share. Assuming the stock sells at the mid range of its offer - $14, Patrick-Ezell will be sitting on a cool $27.89 million. Take out the $896,548 sheáwill have to pay for them, (which can be done in stock) she'll still be looking at nearly $27 million.

In the meantime the company is losing money at a trot. In 1999 it made a pro forma loss from operations of $26.2 million on revenue of $15.8 million. In 1998 it lost $6.6 million on revenue of $3.5 million. The company, in its prospectus, warned investors not to expect any profits any time soon.

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