Netgear Jumps in Trading Debut

Updated from July 30

Just as Wall Street analysts are becoming wary of Wi-Fi, investors are warming up to it.

Netgear (NTGR Quote), which makes gear used for wireless fidelity networks (as well as Ethernet networks and broadband), made a strong showing when it started trading Thursday.

The company raised $98 million through an initial public offering of 7 million shares priced at $14 each. The offering was underwritten by Lehman Brothers, Merrill Lynch and UBS Warburg. Tuesday, in light of robust demand, Netgear's offering price was hoisted from the $10 to $12 range to $12 to $14.

At midday, shares of Netgear were gaining $3.30, or 24%, to $17.30.

But just because Netgear qualifies for an IPO (having delayed an earlier attempt to come public in 2001) doesn't mean it's a smart long-term investment. While predicting Netgear's IPO will do well, cautious fund managers and analysts say the company must contend with bruising price pressure and mounting heavyweight competition in the Wi-Fi equipment market.

One fund manager, speaking anonymously, said he plans to buy IPO shares and quickly offload them. He's betting the stock will get a rise from bullish sentiment on Wi-Fi. "It's a theme stock: Wireless LAN, people love it," says the manager. But he's not interested in holding on to shares. "The space is very hot at the moment, but it's drawing a huge amount of competition," he explains.

Wi-Fi Grows Sky-High

Still, Netgear's IPO offers a welcome respite for a growth-starved tech market. Market watchers say the stock should do well in its debut, buoyed by the upbeat buzz around Wi-Fi.

Not surprisingly, Netgear says its wireless networking and broadband products are outgrowing Ethernet, which historically generated most of its revenue.

The broad market for wireless LAN network equipment is showing double-digit growth. Revenue for WLAN gear grew 16% year-over-year in the first quarter of 2003, to $478 million, according to Synergy Research Group.