Chip firms hope to rekindle IPO market
The initial public offerings of three semiconductor companies may breath some life into an IPO market that has nearly flat-lined.
The continued malaise surrounding
technology stocks virtually shut down the
IPO market this week, as just two deals debuted. That makes it the slowest
week in terms of new issues and the amount of capital since the traditionally
slow holiday period.
Eight IPOs had been expected, but six were indefinitely postponed or scheduled for later this year.
The two companies that were able to sell their shares, Sequoia Software and Autonomy, managed to raise $252 million, as investors remained cautious about plowing money into new companies at a time when the shares of many large and seasoned tech companies are languishing. IPO analysts said such a weak performance hasn't been seen since January.
Sequoia shares priced yesterday at $8, the low end of their range, and saw a high of $12.38 today.
Autonomy, a British company that already trades publicly overseas, priced below its range at $124 a share. Since its U.S. debut Tuesday, shares have slipped to about $120.
Next week's calendar is expected offer a more choices for investors, with a record number of semiconductor companies expected to make their public debuts, said Richard Peterson, an IPO analyst with Thomson Financial/Securities Data.
Semiconductor companies Pixelworks, Nogatech and Parthus Technologies are slated to launch their IPOs next week. But IPO analysts note that a fiber optics-related company, New Focus, could grab investor attention. In all, nine tech IPOs are on the calendar, seeking to raise $675 million.
"Better times are ahead. The calendar is going to get heavier after the (Federal Reserve) hold their meeting," said Jeff Hirschkorn, senior IPO analyst with IPO.com.
The Fed is expected to raise short-term interest rates by up to half a percentage point when it meets Tuesday. Analysts said the markets have already factored in a half-point increase.
New Focus is expected to perform well next week--regardless whether a rate hike exceeds expectations. The company makes fiber-optic products designed to boost the capability of optical networks.
"This will be one of the most popular deals next week," said Paul Bard, an analyst with Renaissance Capital IPO Fund. "They manufacture components that are used by a lot of the major network equipment manufacturers like Agilent and Nortel Networks. And there's a huge demand for those kind of components."
New Focus generated revenues of $18.1 million during the nine-month period ending Dec. 31, up 45 percent from the year-ago period. The company's net loss, however, widened during the period to $7.7 million from $3.4 million.
The optical component market is expected to grow to $22 billion in 2003 from $6.6 billion in 1999, according to research firm Ryan Hankin & Kent.
New Focus hopes to raise $80 million, based on the high end of its $14 to $16 pricing range and 5 million shares it will offer. The stock, which is being underwritten by Credit Suisse First Boston, will trade under the ticker "NUFO."
Semiconductor and semi equipment
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Although the Philadelphia semiconductor index is about down 28 percent since mid-March, it still has outperformed the Nasdaq composite index, which has fallen nearly 31 percent.
"The fact that semiconductor stocks are down is more a function of investor psychology rather than the fundamentals," said Charles Boucher, chip analyst with Bear Stearns. "The industry has had strong growth for the past five years and is firing on all cylinders...I think when we finish this year, semiconductors will outperform the broader market."
Hoping to ride such optimism to a successful IPO, Pixelworks aims to raise $80.5 million by selling 5.75 million shares for $12 to $14. The company designs and markets chips and software that allow broadband content to be viewed on a variety of devices.
Two of the company's venture capital firms will hold sizable stakes after the offering, which bodes well for the new issue, Hirschkorn said. Battery Ventures will retain a 25 percent stake after the offering, while Sequoia Capital will hold an 18 percent stake.
During the three months ending March 31, the company generated $7 million in revenues, up from $616,000 a year ago. Its net loss widened to $4.3 million in the period from a loss of $945,000 a year ago.
Pixelworks, which is being underwritten by Salomon Smith Barney, will trade under the ticker "PXLW."
Nogatech, a maker of chips used in the compression of digital video, may also stand out--because the company is in the black.
"It's a profitable company and has some interesting technology," said Bard. "It's also going to be interesting because it's using a Dutch auction process for its IPO. It's hard to say how these types of auctions will hold up in this type of market."
Lead underwriter WR Hambrecht will sell the shares through its OpenIPO format, which allows individual investors to bid on shares before to the stock's market debut.
Nogatech is seeking to raise $56 million, based on the high end of its $12 to $16 range and the 3.5 million shares it will sell. The company will trade under the ticker "NGTC."
The company generated revenues of $2.9 million for the three-month period ending March 31, up from $870,000 a year earlier. It reported profits of $93,000 for the first quarter, compared with a loss of $817,000 a year earlier.
Ireland-based Parthus, a developer of semiconductor intellectual property for mobile devices, is seeking to raise more than $172 million, based on the high end of its $10.91 to $13.25 range and the 13 million American depository shares it will offer. Goldman Sachs is the lead underwriter, and the stock will trade under the ticker "PRTH."
Last year, the company generated revenues of $19 million, compared with $15.6 million a year earlier. It lost $2.6 million for the year, compared with a profit of $717,000 the previous year.
Investors may focus on the company's customer list, which includes Texas Instruments and Cirrus Logic, Hirschkorn said.