Techs rise, but no sector resurgence seen yet

Sunday September 24, 10:46 am ET

By Yung Kim

NEW YORK (Reuters) - A trio of initial public offerings from technology companies opened well last week, but analysts hesitate to describe the upswing as a sweeping trend.

Technology IPOs have suffered their share of blows this year, including 10 delayed offerings and the now infamous offering from Vonage Holdings Corp. (NYSE:VG - News).

"This has been a difficult period of digestion for IPO investors," said David Menlow, president of IPOfinancial.com. "We went from basically a standing stop to a running start in the span of just one week."

On Thursday, shares of Riverbed Technology Inc. (NASDAQ:RVBD - News) jumped out of the gate, closing the first day up 57 percent from the offering price, while shares of software makers CommVault Systems Inc. (NASDAQ:CVLT - News) and DivX Inc. (NASDAQ:DIVX - News) opened 10 percent and 22 percent higher, respectively.

In the pipeline of registered IPOs are 18 technology deals valued at $1.9 billion, including the scheduled opening of Internet photo service Shutterfly Inc. (NASDAQ:SFLY - News), worth about $81.2 million if priced at the midpoint of a forecast range, according to data tracker Dealogic.

However, positive early gains from the week's trio of tech companies "does not sound the all-clear," Menlow said.

"That's what would worry me," he said. "If people went back to a sector-rotation mentality."

REVENUE GROWTH

In addition to roles in the tech sector, Riverbed, DivX, and CommVault have other traits even more important for successful debuts; top-line revenue growth and high gross margins, said Francis Gaskins, an independent IPO analyst and president of IPO Desktop.

"It was kind of an anomaly, that these three tech stocks came out and did well this week," Gaskins said. "In the IPO market, there is a real scarcity in companies that have the characteristics of these three companies."

Computer networking company Riverbed lost $17.4 million in 2005, but revenue grew to $22.9 million from $2.6 million in 2004, according to financial statements submitted to the Securities and Exchange Commission.

CommVault designs software that backs up, protects and recovers data and sells products under the QiNetix brand.

For the three months that ended June 30, the Oceanport, New Jersey-based company earned $3.34 million on $33.5 million in total revenue.

Media software maker DivX roughly doubled revenue from technology licensing between the first half of 2005 and 2006.

The San Diego, California-based company's software was downloaded more than 50 million times over the last 12 months, an SEC filing said.

"Is this the start of a tech boom?" Gaskins asked. "Well yeah, if every company has top-line revenue growth and high gross margins."

MINDRAY IN FOCUS

Mindray Medical International Ltd. (NYSE:MR.TO - News), a China-based medical device company, will try to piggyback on previous IPOs' successes.

China-based foreign language instruction company New Oriental Education & Technology Group Inc. (NYSE:EDU - News) kicked off the post Labor Day IPO market.

That debut soared as much as 54 percent September 7, bolstered by optimism about the Chinese market. Two-thirds of the company's revenue is derived from four cities in China -- Beijing, Shanghai, Guangzhou and Wuhan -- each with a population of more than 4 million.

New Oriental's shares traded Friday up 71 percent from the offering price.

"It's the (sector) and country they are in," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. "You have to put the two together."

Mindray Medical is scheduled to float 20 million American Depositary Shares (ADS) for between $10 and $12 each on Monday.

The company develops, manufactures and markets medical devices in China, with a growing presence in other parts of Asia and Europe. It offers more than 40 products in patient monitoring devices, diagnostic instruments and ultrasound imaging systems, according to documents filed with the SEC