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August 31, 2000

Outshining the Dotcoms

By Colleen O'Connor

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Companies that harness the Web's potential may be at the forefront of a stock market revival this year.

That's because the demand for superior Internet services is exploding.

Some facts: The rate of U.S. companies selling their products online is expected to grow by 56 percent this year over 1999. About 64 million adults go online in the U.S. every month, according to New York-based Mediamark Research Inc. There are an estimated 800 million Web pages.

"Companies are now at work aiming to strengthen the speed and power of the Internet," said George Nichols, an analyst at Morningstar, the Chicago-based market watcher. "Technology is speeding up optical traffic and facilitating the switch from telecom traffic."

More importantly, investors are discovering the opportunity derived from optical networkers and Internet infrastructure companies. "It's another sector in the IPO market that has traditionally been overlooked," Nichols added.

Magic Gone

With some 40 percent of high-tech IPOs trading below their original offering price this year, and the magic gone from the dotcom brand name, companies related to Internet infrastructure have been the only ones to debut with impressive results this year.

In fact, of the top 10 best-returning IPOs for the first quarter of the year, eight were related in this way to the Internet.

Optical networking equipment manufacturer Sonus Networks Inc. (Nasdaq: SONS) had the hottest cumulative gain in the second quarter. Its stock traded 586 percent above its IPO price, vaulting from $23 to $157.88 at the quarter's close.

Nuance Communications (Nasdaq: NUAN), a producer of voice interface software platforms, had a 390 percent gain since its IPO. That company saw its offer price spike from $17 to $83.31 at the close of the second quarter.

New Focus Inc. (Nasdaq:NUFO), a manufacturer of fiber-optic products, saw a 311 percent jump in its $20 offer price. It closed the second quarter at $82.13.

Other Internet infrastructure-related companies had similar success in the quarter so leaden with dead weight that just 98 companies went public, compared with 145 at the same time just a year ago.

Marvell Technology Group Ltd. (Nasdaq: MRVL) saw its $15 offer price jump 280 percent to $57 by the end of the second quarter; Centillum Communications Inc. (Nasdaq:CTLM) and Stanford Microdevices Inc. (Nasdaq:SMDI) saw 263 percent and 262 percent gains, respectively.

Centillum, an integrated circuits manufacturer of DSL equipment, saw its stock leap from a $19 offer price to close the second quarter at $69.

Stanford, a maker of integrated circuits that boosts the performance of wireless and broadband communications systems, saw its $12 initial offer jump to $43.44 by the close of the quarter.

Fiber-optic communication equipment enabler ONI Systems Corp., (Nasdaq: ONIS) posted a 396 percent gain since its IPO, going from a $25 offer price to $117.20 at quarter-end.

Bookham Technology, (Nasdaq: BKHM), a company that has done extraordinary things with the light processing functions of optical components, rounded out the list of top achievers, as its $15.83 IPO rose 274 percent to $59.25 by the end of the second quarter.

Growing Faster