A Dangerous IPO

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As 2007 comes to a close, wrapping up a healthy year for initial public offerings, another firm has filed to test the public markets. This new entrant is mobile-data-solutions developer Danger, a Palo Alto firm that designs software embedded on mobile devices popular with young demographics. No details of the pricing of the IPO were given, though the firm does hope to raise roughly $100 million and use $7.2 million to pay off debt.

Danger builds the software and mobile data services integrated into the popular Sidekick devices sold by Deutsche Telekom's (NYSE: DT) T-Mobile in the U.S., as well as similar devices in Australia and Europe. Like Research In Motion (Nasdaq: RIMM), Danger earns revenue from each subscriber it serves. Unlike RIM, though, Danger does not manufacture and sell the device -- partners Motorola (NYSE: MOT) and Sharp actually build the hardware platform.

The company may prove to be a minefield for investors, though. While it earned $56.4 million in revenue in the most recent 12 months, the company shows $11.8 million in operating losses.

There's more to be concerned about with Danger than just financials, though. The company specifically mentioned the Google-led (Nasdaq: GOOG) Open Handset Alliance as a risk to its business. T-Mobile -- Danger's largest source of revenue -- and Motorola are both founding members of the alliance with Google, and both have expressed interest in adopting an open-source mobile software platform. Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ) and Vodafone (NYSE: VOD) -- also just announced it will open its network to non-proprietary software applications and operating systems for mobile devices.

These future uncertainties are in addition to current competition from RIM, which is making a big push into Danger's consumer space. Even Nokia (NYSE: NOK) is now venturing into offering content with its already popular line of media-capable wireless devices.

Taken together, Danger will have to spend a lot of money to just keep up with the intense competition in the mobile data market. As such, I expect the company to incur substantial losses for at least a few years, and I give it a low probability of success if it chooses to go it alone. Investors beware; the company's name should serve as your warning.

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