Wall Street Beat: IPOs, M&A, chip news stir tech optimism

Zynga trades down midday but makes the biggest splash by an Internet-based business since Google

Zynga's initial public offering Friday, a raft of acquisition announcements this week from IBM, Salesforce and others, and some upbeat reports on the chip and hardware sector are putting a positive spin on year-end news for the tech sector.

"The IPO market normally closes down by mid-December so this week's calendar wraps up 2011 with a blaze of lightning and a clap of thunder to produce the busiest week of the year," notes John E. Fitzgibbon, founder of IPO Scoop, in his weekly report.

Eleven IPOs were launched this week, raising about US$3.5 billion,[b] the busiest week in public offerings since Nov. 12, 2007, before the recession, Fitzgibbon noted. Two of the big headline-grabbing IPOs -- Zynga and Jive Software -- were in the tech sector.

Zynga, developer games including CityVille, FarmVille, and Mafia Wars, raised $1 billion, with shares priced Thursday night at $10, the high end of its marketed range. Shares slipped slightly in public trading late Friday morning, down by $0.20 to $9.80, a bit of an anticlimax. Nevertheless, Zynga is making the biggest splash on the market by a U.S. Internet company since Google raised $1.9 billion in its 2004 launch.

Social network software provider Jive Software priced its shares Monday at $12, above the $8 to $10 that was expected. Though shares were trading down slightly Friday morning from Thursday's close, they were still going for a healthy $15.05.

The rise in mobile computing and the digital consumer market coupled with a more stable credit market could pave the way for a new wave of IPOs and should lead to an increase in mergers and acquisition activity, according to several reports.

Recent IPOs by Groupon and LinkedIn, this week's IPOs, plus Facebook's anticipated public offering in the first half of next year "may re-open the offering window, giving some private companies the opportunity to go public as an alternative exit," said Jeff Liu in a report from Ernst & Young .

Mergers and acquisitions could also get a boost, he noted.

"We are entering a transformative cycle for technology propelled by mobility, the evolution of cloud computing and the explosion of data," Liu said. "Despite a flat 2011, 2012 will be a strong year for technology M&A as these disruptive technologies spur significant strategic deal-making activity among technology companies and PE [private equity] firms looking to generate returns."

M&A activity this week included Salesforce.com's announcement Thursday that it will acquire cloud-based performance management vendor Rypple, for an undisclosed amount. The deal comes in the wake of SAP's announcement to buy cloud HR software vendor SuccessFactors.

Also Thursday, IBM announced it signed a deal to buy supply and contract management software vendor Emptoris. The acquisition, for an undisclosed amount, comes after last week's $440 million deal for analytics maker DemandTec.

The biggest tech acquisition of the week was Lam Research's move to acquire rival maker of chip-manufacturing technology, Novellus Systems, for $3.3 billion in stock.

Semiconductors and hardware had a tough third quarter, plagued by floods in Thailand that crimped hard drive production, hangover from the tragic Japanese earthquake in March, oversupply of DRAM and a smartphone market that that dipped as users waited for the iPhone to launch. Economic uncertainty as a result of the sovereign debt problems in the euro area also dampened spending by cautious consumers and businesses. Nevertheless, an IDC report issued Thursday forecast semiconductor revenue to register positive year-over-year growth of 3.4 percent and 3.1 percent with $296 billion and $305 billion for 2011 and 2012, respectively.

"We expect the semiconductor market to bottom by the second quarter of next year and growth to resume for the market and accelerate in the second half of 2012. The enterprise spending cycle should continue in 2012, and the launch of Windows 8 for tablets and ultrabooks will drive demand for computing platforms," said IDC analyst Mali Venkatesan in the report.

Both enterprise and consumer spending willl experience growth, IDC said. "Datacenter and storage will also continue to grow in order to support cloud-based applications and data traffic will drive more investments in networking and computing infrastructure," Venkatesan said. " Double-digit growth is also expected for consumer devices such as media tablets and eReaders."

A rising tide, however, is not lifting all boats. Research In Motion shares were trading down by $1.58, at $13.56, in midday trading Friday after its Thursday announcement that it won't start selling phones with its new software platform until the last half of next year. RIM said third quarter profit dropped year-over-year to to $265 million from $911 million.

On the whole, though, market news Friday looked good on the back of some upbeat news. Thursday, government figures showed unemployment benefits applications dropped last week to 366,000, the lowest level in three and a half years. Also, a regional manufacturing index the New York arm of the Federal Reserve rose to the highest level since May. In mid-day trading Friday, the Nasdaq computer stock index was up 16.69 points or 1.24 percent, to 1,362.67. More broadly, the Nasdaq was up by 27.19 to 2568.86, the S&P 500 rose 8.67 to 1224.42 and the Dow Jones was up 39.47 to 11,908.28

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Marc Ferranti

IDG News Service
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