Tech Industry

IPO pipeline swells for fall

As of August 31, there were 287 IPOs in registration, expecting to draw $36 billion from the markets. Is the jam-packed pipe indicative of gushing liquidity ahead -- or just a sign that last winter's dot-com Drano still hasn't done its job?

It will depend on how the market behaves, analysts said. With only 26 deals on deck for September, and a barren calendar for the next two weeks, visibility is low. Underwriters are playing an intricate game of chicken with investors.

There's a good reason for underwriters' trepidation -- August's IPO results were decidely mixed. The well-known offerings of AOL Latin America (Nasdaq: AOLA) and PeoplePC (Nasdaq: PEOP) have struggled.

"Underwriters are taking their time. They don't want to open the floodgates and find there's no one there to buy; on the other hand, they don't want to have too few," said Randall Roth of Renaissance Capital. "We've had an issue of saturation for a while now. Even at 100 less, it's 100 more than what we were seeing just a few years ago when the market was strong."

For a long time that number was much higher, but "the pricing frenzy in the summer cleared some companies out," he added.

The IPO market made a mid-summer recovery from its winter slump, pushing many deals out the door.

But several companies were scared off by the finicky markets, and are part of the huge backlog now. A grand total of 91 deals were withdrawn, and 21 deals were postponed from the beginning of the year to August 27, according to Hoover's Online.

Big backlog

There was a whopping backlog of 416 IPOs as of August 27, according to Hoover's statistics, which includes deals that have been withdrawn or postponed. That's about double the number of deals in the pipe as of the same time for the past two years -- in 1999, there was a backlog of 225 deals, and in 1998, the backlog was 222 deals. In those years, 203 and 55 deals, respectively, went public in the period from September to the end of the year.

"Some probably aren't going to make it," said Tom Frangione, a portfolio manager for MetaMarkets.com specializing in IPOs. "We're definitely going to be more selective," he added.

Analysts agree that though the upcoming season looks strong, successes will only be in narrow industry sectors. Categories that should be strong include the usual suspects; software, networking, telecom and anything wireless.

Analysts see the backlog as indicative of market interest, "demand is meeting supply," said Justin Burrows of Hoover Online's IPO Central. According to Hoover's statistics, there are 60 computer software and services companies and 54 telecommunications deals in the pipes.

Companies to watch

Within those categories, Borrows sees network and connectivity issues, of which there are six, as being the most promising: x10 wireless (Proposed ticker: XTEN), Smartlink (Proposed ticker: SMLK), RTS Wireless (Proposed ticker: RTSW), PlaceWare (Proposed ticker: PLCW), Synchronicity (Proposed ticker: SNCY).

Wireless is also a hot watchword, and other deals to watch out for in the Telecom category include Horizon PCS (Proposed ticker: HPCS), Verizon Wireless and Nextel International (Proposed ticker: NXTI).

Companies which offer "diversified services," a category in which there is a backlog of 46 offerings, according to Hoover's statistics "won't do well for the same reason they are listed in this category," Burrows said. The market is looking for niche players who can explain exactly what they do. Joinusonline.com (Proposed ticker: JUOL), which offers business-to-business benefits and services to customers, is an example of an offering that may have trouble making it to market.

Hardware offerings such as CoSine Communications (Proposed ticker: COSN), a maker of switches and software; TTM Technologies (Proposed ticker: TTMI), a maker of printed circuit boards for makers of switches and routers; and Simple Technologies (Proposed ticker: STEC) a maker of flash memory for use in communication applications, are among Roth's favorite IPOs to watch for.

"But I don't see any blockbusters out of that group," he added; "underwriters are still waiting to see how the recent rally develops."
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