From TheStreet.com:
thestreet.com
Network Engines Takes Off on Debut
By Carolyn Koo
TheStreet.com/NYTimes.com Staff Reporter
7/13/00 7:09 PM ET
Updated from 1:20 p.m. EDT
Shares of Network Engines (NENG:Nasdaq - news) finished up 71% after
they made their stock market debut on Thursday, showing that investors
now reward only those new issues that can stand up to intense scrutiny.
Network Engines was trading up 10 5/8 at 27 11/16 by early afternoon.
Its initial public offering was priced at $17 a share, at the top of the
$15 to $17 range that had already been increased. Network Engines
finished Thursday regular trading up 12, or 71%, at 29. The number of
shares offered to the public was also increased, to 6.5 million from 5.5
million, enabling the company to raise $110.5 million with the issue.
Based in Randolph, Mass., Network Engines is part of the emerging market
server appliance market, which is projected to enjoy 70% annual growth
over the next five years. "We like investing in companies that are
building the information superhighway," said Yusuf Haque, an analyst at
the financial information portal 123Jump.com.
Network Engines creates specialized Internet servers, which dish out
information over the Web, at a faster rate and lower cost than the
multifunctional servers developed by such companies as Sun Microsystems
(SUNW:Nasdaq - news).
"Because they only do one function, their servers perform at a higher
level than a general purpose server that has a lot more applications
involved," said Paul Bard, an analyst at Renaissance Capital. "And since
they're focused on one particular market, generally the price point is
lower."
And though the company is not currently profitable -- having lost $5.8
million on $10.5 million of sales for the six months ending in March --
it did post a profit back in 1996. In any case, "it's in such a rapid
growth segment that this is not something I would worry about as an
investor," Haque said.
In terms of competition, Bard said, "the market's wide open and really
new." Network Engines has only two direct competitors, Cobalt Networks (
COBT:Nasdaq - news) and Network Appliances.
That's good news, but on the flip side, Bard noted that the major server
manufacturers such as Dell (DELL:Nasdaq - news) and Compaq Computer (CPQ
:NYSE - news) recognize the demand for specialized servers and are
starting to develop their own products.
George Nichols, an analyst at Morningstar.com, also worries about the
company's concentrated customer base. "IBM (IBM:NYSE - news) and
Microsoft's (MSFT:Nasdaq - news) WebTV are great clients to have, but if
they generate 44% of sales, the company needs to find more customers,"
he said. |
