Avaya Inc., the communications networking company based in Basking Ridge, NJ, according to reports in The Wall Street Journal (June 7), is set to file for an initial public offering (IPO) as early as this week to hopefully raise about $1 billion.

Spun off from Lucent Technologies Inc. (now Alcatel-Lucent (News - Alert)) in 2000, Avaya is owned by private equity firms Silver Lake Partners and TPG Capital, who took the company private in 2007 for $8.3 billion during the private equity boom. The IPO is reportedly for about 20 percent of the company which would value Avaya (News - Alert) at roughly $5 billion. 

Economic conditions have not been kind to Avaya. Like other major tech companies in the equipment business, it has been buffeted by stagnant sales and low margins because of intense competition and other factors. For the fiscal year ended September 30, 2010, the company reported a net loss widening from $847 million the previous year to $874 million.  Revenues grew 22 percent from the prior year to $5.06 billion but much of that has been attributed to Avaya’s purchase of rival Nortel (News - Alert) Networks whose enterprise networking unit Avaya bought for more than $900 million in December 2009.

Reports are that the lead underwriters are Goldman Sachs Group Inc., Morgan Stanley and J.P. Morgan Chase & Co. Citigroup Inc., Barclays Capital and Credit Suisse Group are planning to underwrite the offering as well.

Much of the attention around this deal has been about it being estimated as the fourth largest U.S. IPO of the year and a signal that private equity firms are ramping up to create exit events after years of being stuck. A lot of issues surround the IPO, not the least of which is whether, other than the private equity firms, is this a good deal for potential investors. 

Questions abound including those regarding:

-- Timing —if the IPO is set for next week, the stock is unlikely to trade for several months and market conditions, given things like the budget debate in the U.S. and the European financial challenges, are over-hanging everything.

-- Attractiveness of business sector —even with a #1 market share thanks to the Nortel acquisition and the aged state of the installed base of telecom gear, margins will remain tight and competition fierce across product lines around the globe. This is not a scenario for robust growth or a quick path to profitability. All of this certainly may temper enthusiasm for the IPO regardless of the general state of the general IPO market, the IPO market for technology companies, or the IPO market for technology equipment manufacturers.

Given the lackluster performance of industry giant Cisco (News - Alert) in the networking space, it will be interesting to see the explanations to potential investors as to why to take the plunge.

Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry’s biggest names, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens, Nortel, France Telecom (News - Alert), and others. To read more of Peter’s work, please visit his columnist page.