| Experts
said appliance-server pioneer Cobalt Networks Inc. {COBT}
would make a big splash when it began trading today. But the company's
stock opened at $140 a share this morning, well above its $22
initial pricing.
Goldman Sachs led the offering, with Merrill Lynch and BankAmerica
Robertson Stephens signed on as co-managers of the issue.
Mountain View, Calif.-based Cobalt makes appliance servers,
machines made to handle specific tasks. General-purpose servers,
which are made by larger companies, such as IBM {IBM},
are more cumbersome and costly to set up and maintain.
Cobalt's Qube and RaQ products
offer Web applications such as file-serving, Web-hosting, as
well as services such as as e-mail and e-commerce -- all those
bells and whistles that companies are racing to offer on their
Web sites.
Cobalt’s e-mail server, for example, has Internet service
providers "jumping up and down," says Kimball Brown,
vice president at Dataquest, based in San Jose, Calif. That’s
because ISPs can now buy an inexpensive $999 box off the shelf
and get the machine up and running almost immediately, enabling
ISPs to expand capacity at a far lower cost than was incurred
with previous technologies.
The Cobalt offering comes at a time when market heavyweights
such as Compaq Computer Corp. {CPQ}
and IBM rule the server market, yet companies are clamoring
for cheap, out-of-the-box solutions to their technology needs.
Sales of server appliances that use the Linux operating system,
Cobalt’s particular specialty, are expected to grow by
about 69 percent a year, representing about 24 percent of the
total server-appliance market, or $3.8 billion, by 2003, according
to market-research firm Dataquest.
According to estimates compiled by Dataquest, the server-appliance
market is projected to grow to about $15.8 billion in 2003 from
$2.2 billion in 1999, representing a stunning 64 percent compounded
annual growth rate.
But as with most recent IPOs, Cobalt is starting off in the
red. For the six months ended July 2, Cobalt posted losses of
$8.2 million on revenue of $7.7 million.
And competing with juggernauts such as Dell Computer Corp.
{DELL}
may be a tall order for Cobalt, analysts say. Companies could
eschew Cobalt, looking for end-to-end products as well as service.
"Cobalt Networks is an investment fraught with high risk,"
warned Stacey Quandt, an associate analyst at Giga Information
Group, based in San Jose, Calif., in a recent report.
Quandt expects the bigger boys to offer global services and
support leading the server market. That could still leave room
for a niche play such as Cobalt, however.
Yet, investors have ignored the risk of market behemoths trampling
the little guy if the prospects for growth were hot enough.
Juniper Networks Inc. {JNPR}
had an extremely successful IPO earlier this year, competing
in the same market as Cisco Systems Inc. {CSCO},
the undisputed giant in the router business.
JNPR 52-Week Performance Chart
Sycamore Networks Inc. {SCMR}
also excelled in its inaugural trading day. The company competes
in the fiber-optic equipment market against Lucent Technologies
Inc. {LU}
and Nortel Networks Corp. {NT}.
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