The Wall Street Journal-20080114-IPO Outlook- Tech IPOs Face a Tougher -08- Fewer Than Half 2007 Total of 60 May Reach Market
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IPO Outlook: Tech IPOs Face a Tougher '08; Fewer Than Half 2007 Total of 60 May Reach Market
Technology stocks were the darlings of the market for initial public offerings in 2007, but the environment may not be as welcoming in 2008.
The sector has taken a beating in recent weeks, even more so than the broader market, as investors fear that financial institutions will cut back on their spending for computers and other equipment. A bad run for existing stocks is generally bad news for IPOs, which are considered riskier than well-established names.
Most bankers are pessimistic about business, too. A survey of 100 technology bankers by research firm 451 Group shows they expect a median of 25 IPOs this year, down from 60 in 2007. Currently, 23 tech stocks are awaiting U.S. debuts, including South Korean chip group MagnaChip Semiconductor Corp. and Infonxx Inc., a U.S. provider of directory-assistance services, according to data tracker Dealogic.
Yet some bankers and venture-capital firms say the sector could remain one of the market's most active segments. They point to the industry's predilection for swift growth, something that is in short supply in many areas of the market now.
"We see that investors are looking for growth that can be sustained in a variety of economic climates. You tend to find such growth in tech companies that are focusing on new paradigms. Companies that address issues such as power and demand management are very big businesses right now," says David DiPietro, president of specialty investment bank Signal Hill in Baltimore.
Indeed, tech stocks sometimes fared well last year even when the overall market was rocky. Medical-software firm Athenahealth Inc. had the biggest one-day performance of the year, a 97% pop in September.
Four of the five largest first-day IPO gains last year were from tech stocks, and all came public after the subprime-mortgage downturn began last summer. Overall, tech stocks gained an average 23% on their debut last year, well above the 14% for all IPOs, says Dealogic.
Manuel Henriquez, chief executive of venture-capital firm Hercules Technology Growth Capital, said he is optimistic the IPO market will remain open to technology companies in 2008. Mr. Henriquez, whose firm was behind the November launch of Rubicon Technology Inc., which closed Friday at $22.55, up 61% from its IPO price of $14 a share, said he expects more tech stocks to debut this year than last.
But he acknowledges it might take a while for business to get going. "Once we get through the subprime and consumer credit turmoil, which is not likely to end until May or June, we should see stability return to the market," he says.
