Shares of cable Internet access equipment maker Terayon Communication Systems (NASDAQ:TERN) rose this morning on heavy volume following this morning's announcement that it was withdrawing a previously announced public offering of just under 11 million shares. "We are fortunate to be in a position where we do not need additional funds for operations," said CEO Zaki Rakib, "and so we have decided not to proceed with an equity offering at this time."

I suppose it makes sense that investors would cheer this news, given that it would seem Rakib is optimistic about his company's financial health and has prevented further dilution of its shares by canceling the offering. Even so, it doesn't take much detective work to see that there's more to this story.

Why would a company file to sell stock and raise some $75 million, then change its mind eight days later? Well, Rakib says Terayon wasn't happy with the valuation it was going to get for the business. That's sensible enough, but I'm not sure that's good news -- and it doesn't change the fact that Terayon is going to need money eventually.

Terayon is losing money at a good clip: R&D and SG&A expense has come in well ahead of gross profit for years now, and has continued to do so in 2003. The company is quietly burning through its cash and equivalents -- as of the end of Q3, it had just under $150 million worth, down from $162 million to close out Q2.

That kind of burn rate won't hasten Terayon to the graveyard, but the communications equipment business is still a tough one and it's difficult to predict when (or if) the company will turn a profit -- even as it looks toward improved sales in Q4.

Terayon is almost surely going to need to raise capital before long, and investors can only hope that today's news indicates that Rakib believes -- or, even better, knows -- that a better deal is waiting out there.

Dave Marino-Nachison can be reached at