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Computer Wrap: IPOs Flounder in Fickle Market

Computer-related initial public offerings in the software, hardware and services categories have grown in size and number over the last two quarters, although investor interest remains spotty. Share values have plummeted for flash-in-the-pan companies, but IPOs with strong or even mediocre values could indicate longevity and a bright future.

According to our VentureXpert database, in the second quarter of 2000 there were nine IPOs in computer software, hardware and services, totaling $567.1 million in offer amounts and $3,257.7 million in post-offer values. IPO activity continued to soar in Q3, as more than 20 companies in this sector went public, with offer amounts totaling $1.51 billion and post-offer values totaling $5.58 billion.

Despite the surge in IPOs, the computer market has been a test in endurance and share values have been met with a fickle reception.

Some of the worst-hit IPOs from Q2 include ClickService Software Technologies (NNM:CKSW), an Israeli provider of Web-based infrastructure application software that closed Oct. 16 at $3, down from its 52-week peak of $9.75, and Care Science Inc. (NNM:CARE), a provider of Internet-based healthcare tools which closed Oct. 16 at $2.50, down from its 52-week high of $12.13.

Bruce Hochstadt, an analyst with Thomas Weisel Partners in San Francisco who covers Care Science, said the company isn?t necessarily to blame for the low values. He said that “e-health” has been a difficult industry, and the market as a whole for computer-related IPOs has been unforgiving.

“This is a company that went public into a very challenging market,” Hochstadt said. “They might as well have walked into a buzz-saw.”

Corillian Corp. (NNM:CORI), a provider of e-finance solutions to help banks and brokers deploy Internet-based financial solutions, has held respectable values since going public in the second quarter. Despite a long drop from its 52-week high of $32.81, Corillian managed to climb back up and closed Oct. 16 at $11.38.

Clare Ludvigsen, analyst with Keefe Bruyette & Woods Inc. in New York, attributed Corillian?s survivability to its long-term desirability. She said that investors have been kind to Corillian, in recognition of the Internet?s inevitable importance to the banking industry.

“There?s something compelling about the future of Internet services in relation to banks,” said Ludvigsen. She added that Internet banking is more of a necessity than a choice. “Banks have got to get online,” she said. “It?s not like buying your pet food online.” Still, she said that many banks are slow in converting to the Internet, as they spent most of last year tangling with the Y2K bug.

Handspring Inc. (NNM:HAND), a provider of handheld computers, has been one of the IPO market?s few success stories this year. The company went public in the second quarter and peaked Oct. 17 at $97.13.

“They?ve beaten revenues by a large amount each quarter they?ve reported,” said Samuel May, analyst with U.S. Bancorp Piper Jaffray in Menlo Park, Calif. He described the handheld wireless computer sector as a long-term investment with a promising future. “This whole computing category is going to become increasingly important for everybody.”

Aaron Smith can be contacted at Story Feedback