2HRS2GO: A tale of two IPOs

Let's see, thermostats or cable modems?

Today's initial public offerings include a pair of polar opposites in Lantronix (Nasdaq: LTRX) and Microtune (Nasdaq: TUNE). You won't find a clearer illustration of what's hot and what's not.

Lantronix makes servers for networking all kinds of devices. The stock priced at the low end of its range and fell into broken territory as soon as it hit the public. LTRX shares slid 20 percent to 8 by 2 p.m. Eastern time.

Microtune produces gadgets that send and receive radio frequency signals for high speed data devices like cable modems and digital set-top boxes. Shares of TUNE were up more than 66 percent from their IPO price in mid-afternoon trading.

See the buzzword difference? Microtune = new company = frequency tuners = broadband. Lantronix = old company moving in a new field = device servers = Internet bar code scanners and vending machines.

Obviously that's a simplistic and possibly a simpleton's way of looking at things. Unfortunately, many IPO buyers use, shall we say, less rigorous analytical methods than value investors. The initial performance of most IPOs depends on spin and catchphrases, because there usually isn't much else to go by.

Broadband and wireless remain popular investment topics, probably because it's easy to see benefits from it. On the flip side, few folks have thought about hooking up their heating systems and Coke machines to the Internet.

Perhaps Lantronix's servers have a large possible market, maybe Wall Street is just short-sighted, but that doesn't change the fact that the target market isn't sexy enough these days.

Just ask Lantronix competitor Echelon (Nasdaq: ELON), one of the few pure companies in networking home and industrial devices. (Most competition comes from subsidiaries of larger firms such as Siemens, or potential customers' in-house departments.)

Since peaking in March at a closing high of 105 3/8 on nothing more than momentum buzz, Echelon has tumbled far faster than the Nasdaq as a whole. ELON remains higher year-to-date, but clearly many folks felt burned and bailed, otherwise the stock wouldn't have fallen more than 64 percent over the last five months. It's hard for Lantronix to fight that dynamic.

Lantronix isn't helped by its history. The company has been around for more than a decade as a privately-held firm somewhat known for print servers, among other items. Print servers generated more than 15 percent of Lantronix's revenue in the first nine months of fiscal 2000, though that figure is falling rapidly even as device servers grow.

The company has been moderately profitable in the past and even accelerated net income ahead of the IPO. But Wall Street won't be impressed by the company's inability to maintain its sales while building the new product line. Lantronix revenue dropped in fiscal ྜྷ and ྞ, and remains substantially lower than the $40.3 million generated in 1996.

Microtune, on the other hand, sits in the market's current sweet spot. Cable modems and digital boxes are consumer devices, Microtune's silicon products are used in those devices, so individual investors find it easy to get excited about the company.

And because it's relatively new -- Microtune only started generating revenue this year -- it has no anchor of past performance to weigh down the buzz today.

Next week could be different, of course. But for now, it helps to come to market with a clean slate. 22GO>