NEW YORK (CNN/Money) -
This was supposed to be the year when the tech IPO made a triumphant return.
That still might wind up being the case. But with the first quarter nearing a close, it's been an awfully disappointing start.
There have been several IPO flops lately in tech, most notably Chinese chip foundry SMIC on Wednesday. There were hopes that the stock could gain between 10 percent and 20 percent when it debuted. Instead, the stock fell 11 percent and dipped another 2 percent Thursday.
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Two other Chinese tech firms, Tom Online and Linktone, also had lackluster debuts this month.
So far, the only really successful tech IPO has been wireless chip company Atheros Communications. The stock gained 31 percent on its first day of trading last month. And while it's cooled a bit since then, Atheros is still up more than 20 percent from its offering price.
Overall, the eight tech companies that have gone public this year are down an average of 4.6 percent from their offering price.
Hopes were too high
But it's what missing that really makes the tech IPO market unexciting.
For example, Salesforce.com, a company run by former Oracle executive Marc Benioff that allows corporations to rent customer relationship management software online, has received a lot of buzz. But even though the company filed for an IPO in December, it has yet to price the offering.
|†* based on 3/18/04 closing price|
And of course, there's the IPO that everybody is waiting for: Google. At the beginning of this year, many pundits were predicting that the popular search engine company would be trading by the end of the first quarter. But the company has still yet to file for an IPO.
So why hasn't the tech IPO market lived up to the hype? John Taylor, vice president of research for the National Venture Capital Association, said that some of the optimism about tech IPOs at the beginning of the year was misplaced.
He said since the pickup in corporate demand for tech has been relatively slow, that has made it tougher for private companies to gain the type of sales and earnings momentum needed in order to go public.
"We're coming off several quarters in a row where commercial IT buyers were not buying much of anything. That's the limitation," said Taylor. "It's going to take several quarters for demand to rebuild so the IPO market will be coming back in baby steps."
Kathy Smith, research analyst with Renaissance Capital, which runs the IPO Plus Aftermarket fund, said that even the high-profile companies such as Salesforce.com and Google might want to sit back and wait things out because tech stocks have been so volatile lately.
"These companies want to make sure that they have a solid couple of quarters ahead of them. It's not that they can't get these deals done," Smith said.
Will Google change things?
It also seems that investors' attitudes toward tech IPOs have changed. The days are gone that so-called story stocks, companies with little revenue and usually steep losses, could go public on nothing more than a good idea.
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"I don't think the IPO window for tech companies, writ large, is wide open. It's only open for the companies that are big and growing and profitable or near profitable," said Jonathan Silver, managing director of Core Capital Partners, a Washington, D.C.-based venture capital firm.
But what about Google? If it does eventually file and begin trading sometime this year, will that be seen as a seminal event in the history of tech IPOs along the lines of Netscape going public in 1995 and eBay going public in 1998? Taylor doesn't think so.
"Google is unique. It's a fairly ubiquitous brand and a company that is obviously very successful and has a demonstrated track record," said Taylor.
Of course, a well-received Google IPO wouldn't hurt the market. But Silver agrees that it won't usher in a wave of Google wannabes. "It would enhance people's interest in, and appetite for, tech public offerings," Silver said. "But it won't cause a tsunami of activity."
Healthcare offerings look healthy
Instead, it looks like healthcare related offerings may continue to be the bigger success stories in the IPO world. "Tech seems to be feast or famine. But we expect the life sciences sector to still be strong," said Taylor.
So far this year, there have been nine so-called life sciences IPOs and they are up an average of 13 percent from their offering price. Drug developer Eyetech Pharmaceuticals and medical device manufacturer Kinetic Concepts have done particularly well.
This reflects a broader trend in the market. While the Nasdaq has slipped 2 percent year-to-date, the Amex Biotech Index is up nearly 8 percent and the Amex Healthcare Index is up more than 3 percent.
"There's been a cyclical rotation out of tech," said Smith, who also thinks that investors will continue to be more attracted to healthcare IPOs because of the defensive nature of that sector.