The Irvine, Calif.-based company, which specializes in inexpensive computers for the retail market, offered 20 million shares to the public today at a proposed price of $9 a share.
The stock actually opened at $8.38 a share. It dipped as low as $7.75 and went as high as $10 a share before finishing the regular trading day at $8.25, on volume just short of 17 million shares.
The reaction to Emachines stock reflects to some degree the plight of the PC industry. PCs remain wildly popular. In 1999, 112.7 million desktops, laptops and servers left factories, according to statistics from International Data Corp., an increase of more than 20 percent over 1998. PC sales are expected to post another double-digit jump this year.
Unfortunately for manufacturers, the potential gain from increased volumes are being eroded by relentless price cuts and slim profit margins. Dell and HP have been two of the more financially successful manufacturers in the past year, but the two companies have grown at two to three times the market rate. Compaq Computer and IBM, meanwhile, two giants in the industry, have lost money recently in certain PC market segments.
Emachines competes in one of the most notoriously difficult markets: retail. The company mostly focuses on PCs priced between $399 and $899. Combined with rebates, some Emachines PCs sold for $1 in 1999.
Aggressive pricing has rocketed the company from complete obscurity to a spot among the top five consumer PC makers in the United States. The company said it shipped 600,000 systems in December and more than 2 million since its inception in late 1998. Because manufacturing takes place in Korea, the company also enjoys some cost advantages. America Online became an investor last year and promotes the company's computers.
The purchase of Free-PC, which used to give away computers for free, has opened further doors to e-commerce revenue.
Still, even with its popularity, Emachines has found the PC market unprofitable. Between September 1998--when the company began doing business--and December 1998, Emachines garnered $58 million in revenue and lost $2.8 million, according to documents filed with the Securities and Exchange Commission. In 1999, the company reported revenues of $814 million, more than 14 times the previous year. Losses, however, not including acquisitions, came to $5.7 million.
The Free-PC acquisition, meanwhile, cost an estimated $49 million, according to the filing. Expenses related to Free-PC's operations came to $21.9 million in 1999.
That's part of the reason analysts, and apparently investors, remain uncertain whether the company's sales success so far can offset the inexorable pressures of the PC market.
Emachines has also had to fend off two lawsuits filed by Apple Computer and Compaq for various patent and intellectual property infringement claims.