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2HRS2GO: Market wary of Liberate

Network computers faded when PCs became cheap, but that hasn't prevented one of the NC's progenitors from surviving long enough to go public today.

Today's market yielded lukewarm sentiments for the Oracle spin-off once known as Network Computer Inc. and now called Liberate Technologies Inc. (Nasdaq: LBRT). After pricing at 16 and hitting the trading floor at 20, the stock has settled to remain moderately up in the afternoon at 19. Not bad -- except in comparison to other Internet IPOs this year.

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The relatively tepid reception is understandable, given the crowded IPO landscape today, and Liberate's comparatively large offering of 6.25 million shares. Still, Liberate would have seen a more enthusiastic reaction if investors had a better idea of what to expect.

Liberate has refashioned itself as a provider of software that brings the Internet to "information appliances" -- mainly TV set-top boxes, although the company also offers technology for servers and embedded devices such as wireless phones and personal digital assistants.

Television forms the foundation of Liberate's strategy, which is easy enough to understand, given all the hype about the convergence of TV and the Web. The company has signed up some prominent partners, including America Online, Cable & Wireless, U S West, Acer, Fujitsu, Phillips Electronics and General Instrument.

Might make a nice niche for a software company someday, but the market isn't there yet. In five quarters of production, Liberate's technology has shipped in just 314,000 units, a figure that doesn't register as a blip in world where millions of PCs are sold every month.

Even so, it'll probably be a large But Liberate faces difficult competitors, including prominent ones such as Spyglass and Microsoft. Spyglass has a tight development relationshipo with General Instrument, the largest maker of set-top boxes. And Gates & Co. has the inside track for Internet technology used by the largest U.S. cable operator, AT&T.

Liberate also has to live with the spectre of the companies that created it. Oracle's post-IPO holdings comprise 48 percent of outstanding Liberate shares; Netscape, which controls 9.3 percent. Oracle's disappointing track record outside of its core database business, and Netscape's own inability to survive as an independent company, are reason enough to make you wonder about any interests they may have, including Liberate.

Liberate doesn't turn a profit, but neither does any other budding technology company, so that's no big deal. But year-over-year revenue growth of 44 percent (to $5.1 million in the fourth quarter) could be considered mediocre since it's coming from such a small base.

More disturbing is that not only does Liberate not know when it might make money, it's not even sure what the size of its market is.

If you go through Liberate's prospectus, you'll find not a single estimate of its total market opportunity. There are some general statements about growth and demand, but nothing you can hang a figure on.

Other successful companies -- Siebel Systems comes to mind -- have no idea about the size of their markets. But in those cases, we know there's demand, because companies like Siebel merely automate tasks already being performed.

So the entire Web-cum-TV movement remains very unproven. You could easily argue that with PC prices plunging, a PC equipped with a TV tuner card may replace TVs and set top boxes, instead of the other way around. I don't pretend to know what the winning model(s) will be. But neither does anyone else, not even the ones taking part in the battle -- and that's reason enough to stay on the sidelines for now.

Other issues:

  • MindSpring Enterprises Inc.
  • (Nasdaq: MSPG) Once you've gone black, investors don't want to hear you're going back, so the stock is retreating today. MindSpring has profits now, but plans to juice up sales and marketing to pick up several hundred thousand customers by the middle of next year. That spending will cut into earningss for the next three quarters, which leaves investors wondering when the bottom line will be reliably profitable.

  • Compaq Computer Corp.
  • (NYSE: CPQ) Quarterly results are due today after market close, but the bad news has been anticipated for several weeks, so the numbers themselves won't be any big deal. But the conference call should provide analysts with their first chance to interact with the new CEO. 22GO>