ShoreTel Hits the Shores

On the eve of ShoreTel's (Nasdaq: SHOR  ) IPO, Mitel Networks filed a patent infringement suit. It was enough to delay the IPO but not to stop it. The offering hit the public markets last week and is up about 31%.

ShoreTel develops Internet Protocol, or IP, telecommunications systems for major customers. Since 1998, the company has developed a sophisticated infrastructure that melds software and switch-based hardware. It means increased reliability, quality, and low cost. There is also integration with common applications like Microsoft (Nasdaq: MSFT  ) Outlook and many from Salesforce.com (Nasdaq: CRM  ) .

From 2004 to 2006, ShoreTel's revenues have surged about three times to $61.6 million, and net income was $4 million last year. The customer list exceeds 4,500, with marquee names like CNET (Nasdaq: CNET  ) and Robert Half International. 

As should be no surprise, there are many big-time competitors like Cisco (Nasdaq: CSCO  ) , Alcatel-Lucent (NYSE: ALU  ) , and Avaya (NYSE: AV  ) . But ShoreTel has a competitively priced offering and a reputation for strong customer support. In the telecom business, this can be lacking. 

With its IP business, ShoreTel should continue its growth ramp. A recent study from Gartner projects that the IP-PBX market will go from $3.9 billion in 2006 to $7.9 billion in 2010. 

That's fine, but what about the Mitel lawsuit? In the telecom world, litigation is certainly widespread. While suits often result in some type of settlement, there are some nightmares. Take a look at Verizon's (NYSE: VZ  ) brutal patent suit against Vonage (NYSE: VG  ) .

As for the ShoreTel lawsuit, it's probably going to take a year for the litigation to get to the courts, and that's a long time for IPO investors. Yet the litigation can still be a negative factor that weighs on the stock price. So for Foolish investors, it's probably smart to be cautious here until there's more clarity on the litigation.

Further Foolishness:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 2,478 out of 31,857 rated investors in CAPS.


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