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Tech Industry

EMachines slides in debut

EMachines (Nasdaq: EEEE) slid 3/4 to 8 1/4 in its market debut Friday.

The company priced its 20-million share initial public offering at $9 a share. The price range was $8 to $10 a share. When an IPO falls below its offering price it is dubbed "broken."

Credit Suisse First Boston is the lead underwriter.

The company, which made a splash with cheap PCs, initially filed with regulators to go public in August. In January, eMachines acquired FreePC Inc., a Bill Gross idealab! company that subsidized the price of a PC with Internet access and advertising. EMachines (profile) scrapped the FreePC business model, but will use the firm's expertise to gain advertising and direct marketing revenue.

EMachines reported pro forma 1999 sales (including FreePC) of $815.5 million and a loss of $84.5 million. Sans FreePC, eMachines reported sales of $814.3 million and a loss of $5.7 million. The company sees losses ahead, but did report a slight profit of $2.2 million in the fourth quarter.

Just another PC maker?

Prior to eMachines' debut, analysts were on the fence about eMachines’ IPO prospects. Although eMachines tried to position itself as a information appliance company, analysts viewed the company as a PC maker in a tough market.

"The deal may work in the short term, but there's competition everywhere," said David Menlow, chief of IPOfinancial.com.

Menlow said eMachines' IPO would mirror that of Buy.com (Nasdaq: BUYX), a big business-to-consumer company that did well in its first days of trading, but lost momentum quickly.

The PC maker, which offers desktop computers priced from $399 to $1,199, said it will leverage FreePC's model by dropping the free PC but continuing with the streaming ads on customers' screens. "This combination extends a Web-based portal business model to the hardware itself," the company said in filings.

In regulatory filings, eMachines said it will leverage its idealab! and America Online (NYSE: AOL) partnerships to meet its goals.

Stiff competition

EMachines said nearly all of the company's revenue comes from low-margin PC sales. Internet revenue, which primarily derives from sending customers to AOL, was only $3.2 million for 1999, including FreePC.

And that statistic means eMachines faces a lot of competition in the PC space without much of a web selling strategy.

The company relies on retailers such as Best Buy (NYSE: BBY), Circuit City (NYSE: CC) and distributor Ingram Micro (NYSE: IM) to move its PCs.

In addition, competition is fierce with the likes of Dell Computer (Nasdaq: DELL), Gateway (Nasdaq: GTW), Compaq Computer (NYSE: CPQ), Hewlett-Packard (NYSE: HWP) and Apple Computer (Nasdaq: AAPL) all battling for customers.

EMachines also competes with Microsoft's (Nasdaq: MSFT) WebTV and other Net appliance makers. The company plans to launch some Internet appliance products in upcoming quarters.>