Fund managers see busy week for IPOs

America Online Latin America, PeoplePC and McData top a list of 40 companies planning initial public offerings this week.

4 min read
America Online Latin America, PeoplePC and McData top a list of 40 companies planning initial public offerings this week--another busy calendar that is leaving some portfolio managers overwhelmed with options.

"It's a blizzard," said Kathleen Smith, portfolio manager with the Renaissance Capital IPO Aftermarket Fund. "It's hard to do your homework on such a great number of IPOs."

Amid the flurry of new issues--last week 27 companies held initial public offerings--fund managers say they are focusing on only a handful of companies that look the most promising.

This week, McData is garnering attention among fund managers and new issues analysts. The company, a spinoff of EMC, makes so-called fiber channel switches and software for storage area networks. McData plans to sell 12.5 million shares at a range of $19 to $21.

Parent company EMC remains a leading distributor for McData's fiber channel switches, along with IBM.

Renaissance Capital's Smith says McData looks attractive because many of the companies in this segment are doing well. Shares of competitor Brocade Communications Systems, for example, hit a 52-week high of $214 today. Despite the sharp market decline in April, the stock is up about 140 percent for the year.

McData became profitable this year for the first time since 1996, earning $10.8 million for the six months ended June 30, 2000, on revenue of $103.6 million. By comparison, the company lost $1.9 million on revenues of $34.1 million for the same period a year earlier.

The need for storage has grown substantially over the past few years and is expected to continue. According to research from International Data Corp., which was cited in McData's regulatory filing, multi-user disk storage grew from about 7,000 terabytes in 1993 to about 185,000 terabytes in 1999 and is expected to surpass 1.9 million terabytes in 2003. One terabyte is one trillion bytes.

McData will trade on the Nasdaq under the ticker symbol "MCDT." Credit Suisse First Boston is the lead manager for the sale.

AOL Latin America is scheduled to take a second shot at its IPO this week, after it postponed the offering last week due to lackluster investor demand. The company dropped the price of its shares by $7, to a range of $8 to $10, last week.

AOL Latin America Tune in to CNET News.com TV's IPO
Forecast is schedule to sell 25 million shares at the $8 to $10 range. As the company has lowered the price range because of tepid interest, many investors and analysts remain pessimistic about the company's prospects.

"They're substantially behind companies like StarMedia and Terra Networks," said Steven Tuen, a portfolio manager with the Kinetics Internet Fund, who says his fund will not likely buy into the offering.

"I think investors are not all that enthusiastic right now with (Internet service providers) and Internet portals. It's got a great brand name, but it's in an out-of-favor group," Renaissance Capital's Kathleen Smith said.

AOL Latin America is a joint venture between America Online and the Cisneros Group, a popular media company in Venezuela. Although Latin America is viewed as an emerging market with tremendous growth potential, analysts warn that without the needed telephone infrastructure, Internet use will likely grow slowly.

At the end of 1999, only 2 percent of Latin Americans were online, a number that is expected to reach 12 percent by 2005, according to a study by Net research company Jupiter Communications. Only 4 percent of Latin American households own computers, a figure that is expected to reach 13 percent by 2005, the study said.

AOL Latin America will trade on the Nasdaq under the ticker symbol "AOLA." Salomon Smith Barney will handle the sale.

PeoplePC, which sells discounted computers and offers Internet service, is expected to sell 8 million shares this week for $12 to $14.

PeoplePC increased its profile this year with the launch of affiliate buying programs, in which the company sells computers and Internet service to the employees of major companies. In February, for example, PeoplePC signed an agreement with Ford to provide computers and Internet service to 380,000 of its workers.

PeoplePC has signed similar contracts with Delta Airlines and the National Trade Union of Singapore. The company reported a net loss of $107 million in the six months ended June 30, 2000 on revenues of $18.9 million.

"The model is out there; the cellular telephone companies have always given away cell phones in order to provide service," Smith said. "It's not clear which company is going to be the big winner in giving away the computer to get the access."

PeoplePC will trade on the Nasdaq under the ticker symbol "PEOP." Chase H&Q will handle the sale.

For a complete listing of this week's technology IPOs, visit CNET Investor.