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PeoplePC underwriter postpones IPO

The provider of low-cost PCs, which has racked up nearly $200 million in losses since its founding last year, has delayed its initial public offering.

PeoplePC, a provider of low-cost PCs that has racked up nearly $200 million in losses since its founding last year, has postponed its initial public offering.

The company initially expected to sell its shares to institutional investors today and to begin public trading tomorrow. However, investment bank Chase Hambrecht & Quist, which is handling the sale, has delayed the IPO.

San Francisco-based PeoplePC plans to proceed with the offering this week or next, a Chase H&Q representative said. The company plans to sell 11.5 million shares for $12 to $14 each.

Some analysts said investors could be skeptical of the IPO, given Wall Street's recent pessimism with untested business models. PeoplePC in essence gives away computers to enroll people for its Internet service.

"They're basically eating all the losses initially with the hopes getting market share," said Paul Bard, an analyst at Renaissance Capital. "Maybe they would be able to sell that to the market a year ago, but not now. Those aren't the most attractive business models right now."

For $24.95 a month, PeoplePC customers can receive a brand new computer, unlimited Internet access, an email account and space for a personal Web site. Other ISPs, such as EarthLink Network and America Online, offer similar services at a slightly lower cost, but without the free computer.

From its founding March 2, 1999, through Dec. 31, PeoplePC lost $66 million on revenue of $3.4 million. The company lost another $107 million during the first six months of this year on revenue $18 million.

"What investors are critical of right now are companies that don't have a legitimate business model," Bard said. "Based on the current model, it doesn't look like they're going to be making money anytime soon."

PeoplePC's business model is not entirely new. Cellular phone companies have long given away phones to attract subscribers, and some companies have done the same with computers. However, PeoplePC's predecessors--both those that sell discount computers and those that give them away free in exchange for something--have fallen from favor on Wall Street.

Emachines, which sells low-cost PCs and ISP services, went public March 24 amid the IPO boom at $9 per share and fell 75 cents on its first day of trading. Today the company's shares trade around $2.

"I think right now most investors are probably very wary" of this type of company, said Joel Pitt, an analyst with Credit Suisse First Boston, who covers Emachines. "In fact, I think they would be much warier of a company whose model involves losing money on every device it sells."

PeoplePC also has to contend with other companies encroaching on its business model. Early this year, the start-up announced contracts to supply thousands of employees of Ford Motor and Delta Airlines with computers. Under these programs, employees can buy computers through affiliate programs with the employers subsidizing part of the PC costs.

Soon afterward, Dell Computer landed a similar deal with American Airlines. Gateway and Toshiba also have launched affiliate buying programs.

All three of these companies enjoy cost structures that likely allow them to undercut PeoplePC.

For one, all three of them make their own computers. In addition, they employ thousands of sales representatives worldwide who often are already familiar with the corporate insiders that control the funds for these programs.

In its affiliate programs, PeoplePC offers computers from Hewlett-Packard, IBM and other brand-name providers. So far, two of the company's largest customers also are investors; both Ford and Delta own stock warrants in PeoplePC.