Plugging Into High-Tech Stocks : Securities: Analysts predict this year will be strong for new public offerings by small electronics firms.
Buoyed by the recent run-up in technology stocks, small private electronics firms are rushing to issue their first stock, leading many analysts to predict that this year will be the strongest since 1987 for new public offerings of high-tech companies.
At least three dozen electronics companies, from the Silicon Valley in California to Route 128 in Massachusetts, are likely candidates to issue their first publicly traded stock this year, according to one market watcher’s survey. In the first two months alone, at least seven electronics companies registered for initial stock offerings with the Securities and Exchange Commission and at least two of those have completed their offerings.
“It’s a tremendous market now,” said Frank Cassou, a Silicon Valley lawyer specializing in taking technology companies public. “We think the first six months of 1991 will exceed all of 1990.”
Although this is a welcome development for technology companies, venture capitalists and the stock market in general, analysts caution that investors still must be wary when betting on new high-tech companies.
“There’s enormous excitement among investment bankers and their clients,” said Richard Shaffer, a New York technology analyst. “But investors should look hard. There’s not a lot of ‘Grade A’ beef in this group. Maybe there aren’t more than half a dozen companies (of the 36) that are exciting from the investors’ viewpoint.”
Still, a strong market for new public stock offerings can bode well for future technology start-up companies trying now to get organized and financed. By cashing out their positions in new technology firms through initial public offerings, venture capital funds and institutional investors replenish their coffers for future start-up investments.
Whether they intend to reinvest immediately or not, these funds and institutions are lining up to take advantage of the current market opportunity before it sours--as it invariably does. Many funds waited for years for their companies to get to where their business would be strong enough to attract public shareholders--only to find that the market for new issues had evaporated.
After several almost frothy years in the early 1980s, the market for initial public offerings slowed and then came to a virtual standstill in late 1987 after the stock market crash. There were subsequent rebound attempts, but none were sustained.
And even this market may not be sustained, said Michael Murphy, editor of the California Technology Stock Newsletter in San Francisco. Murphy predicted that the Dow Jones industrial average will fall 200 to 300 points within the next six months, virtually wiping out the opportunity for new stock offerings.
“You got to grab this window while you can because I don’t think it’s going to last,” Murphy said.
According to government filings, five companies are now awaiting approval of their initial stock offering proposals: Symix Systems, a Columbus, Ohio, software publisher; Atmel, a San Jose semiconductor maker; PictureTel, a Peabody, Mass., video-conferencing company; Brooktree, a San Diego semiconductor maker, and MDS Technologies, a Deerfield, Ill., firm. Zilog, a Campbell, Calif., chip maker, raised $22 million from its IPO in late February. Simtek, a Colorado Springs, Colo., chip maker, raised $12 million this week.
Shaffer lists another 30 or so companies that he considers likely candidates to join the rush later this year.
Included in this list are Shaffer’s six nominees for “most attractive” potential public companies: ChipCom, a Waltham, Mass., data communications device maker; Intuit, a Menlo Park maker of financial software for personal computers; Network Computing Devices, a Mountain View computer terminal maker; Sybase, an Emeryville software publisher; SynOpsys, a Mountain View maker of design automation tools, and Wellfleet Communications, a Bedford, Mass., maker of computer network systems.
Shaffer also listed Retix, a Santa Monica maker of networking software and devices, among the companies considering a public offering this year. However, Retix President Stephen Frankel said he is not sure whether this is the right year to debut on the public market.
Frankel says Retix, which had sales last year of $52 million, is entering potentially explosive new markets for its products and cannot predict with enough certainty how it will perform. “If we came to the public market now, we would have to base our value on estimates that could be wrong,” he said. “But by waiting at least six months we can build a track record.”
Harvey Schloss, chief financial officer of Power Up Software, a San Mateo PC software publisher, said his company is also taking a longer look before jumping in.
Schloss said Power Up, whose sales were $25 million last year, remains concerned about the softness of the retail software market, where most of its programs are sold. Until the company is sure sales have rebounded, Power Up will remain a private company, he said.
“It’s a great (IPO) market; it’s pretty frothy,” Schloss said. “But there are dangers if you can’t sustain investor confidence.”
Such sentiments were rarely, if ever, heard in the heady days of the last big IPO rush. Between August, 1982, and June, 1983, nearly 200 computer-related companies completed their initial stock offerings. But many of these deals soon soured, and several companies closed their doors within just a few years.
“In the past, we’ve had companies go public too soon,” said Robert Gunderson, a Silicon Valley attorney specializing in technology business issues. “I’d like to think we’re remembering that now.”
Tracking IPOs
A host of small, private high-technology firms are racing ahead with initial public offerings. The market for IPOs has been slow since the 1987 stock market crash, leading some experts to expect that 1991 will be the strongest year since.
INITIAL PUBLIC OFFERINGS BY ELECTRONICS COMPANIES IN 1991
2/4/91 MDS Technologies 5.5 million 2/12/91 Atmel 5.2 million 2/12/91 Symix Systems 12.0 million 2/27/91 Zilog 22.0 million
Source: IDD Information Services
