Stop the IPO Avalanche

The flood of semiviable companies going public is the single biggest drag on the market. Plus, updates on digital music.
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Know what scares me most right now about this dangerous week -- and maybe, this dangerous month -- in the market? It's not the screams of the

Greenspawn

, running around forecasting their guru's impending ax work. It's not the 100-degree-plus temperatures every time I stick my head out the window. And it's not the market's uncertain, timorous wobbling around on prices, though all three do scare me.

The big one? You'll find it in the first graf of

Ben Holmes' IPO watch Monday: There are 43 deals; both IPOs and secondary offerings, slated to price this week, up from 31 last week.

Read down a couple of paragraphs and you'll find another chilling stat: There are 336 more in the oven, getting warmed up.

We know that not all these will actually price and go to market, but a significant number will -- probably 40 this week, net. And that's exactly what we

don't

need right now. The flood of semiviable companies, which have come to the public equity markets with their semiviable business plans and semiviable valuations this year, is the single biggest drag on the market. Finite dollars chasing a growing number of deals equals lousy results for everyone.

Until we can put the brakes on this IPO landslide, we're not going to form a bottom; Net-stock investors are going to remain wary and in cash; and sound stocks already in play, maybe even those looking for secondary-offering cash, are going to continue to get clobbered.

Restraint? They don't know the word these days in underwriter land. Or should that be under

water

land?

More on Digital Music:

This promises to be an interesting week for those following the nascent digital-music business. The

Interactive Music Expo

, running Aug. 9 and 10 at the Jacob K. Javits Convention Center in New York City, offers keynotes, presentations, displays and rumors aplenty for those trying to tell which way these winds of change will blow.

If you've been tracking

e.Digital

(EDIG)

, which I wrote about here

last month, you may find a demo scheduled for 2:15 p.m. Tuesday interesting. A

Lucent

(LU)

rep is scheduled to show a portable player incorporating technology from Lucent, which I am long, and its two technology partners,

Texas Instruments

(TXN) - Get Report

and e.Digital. No word yet on who's going to sell the machine, nor whether it'll be ready for the crucial Christmas market this year.

But if it sounds good, has a name-brand consumer electronics firm behind it and is out in time, it could gather a fair portion of this year's Christmas-quarter sales.

By the way, the hailstorm (a polite term ... ) of complaints from EDIG holders that I predicted in that column materialized right on schedule. They confirmed my feelings about both the penny stocks listed on the bulletin boards, and the zealots who trade in them and post the details of their lives on Internet message boards devoted to them. Both the world of bulletin board stocks and the message-board crowds are parallel universes to their own, and I got some genuinely wacky notes. Plus, a friend with a larger capacity for masochism than my own, who regularly trolls the message boards, passed along to me some of the farther-out notes posted about the column.

In one thread, someone discovered that there is a heavy-metal musician named Jim Seymour whose work is posted on

MP3.com

(MPPP)

, and so immediately assumed I had promoted MP3.com (which I hadn't done) and dissed EDIG's prospects, as a way of pushing more of that good old metallica of mine. I probably don't need to spell this out for regular readers, but although, yes, I am a musician and composer, the heavy metal genre is about as far from my interests and work as possible. Twasn't me ... but I'll bet

he

got some weird emails!

Weirder still, an EDIG fan using the screen name JimSeymour began posting successive rewritten versions of my column that grew progressively more positive than the real thing. I trust no one was fooled by the spoofing ...

Finally, did you notice that huge story on the front page of the Sunday

New York Times

Business section yesterday, about the revolution presently roiling the music business? Did you find it a bit ... umm ... curious that the story didn't include a word about downloadable digital music, MP3, SDMI, and so on -- but saw the revolution solely in terms of the two new higher-fi/larger-capacity CD formats coming to market? Somehow, worrying about $30 CDs with wider frequency response doesn't exactly capture what's really going on in the "record" business.

As my neighbor's teenage daughter would say, "How

1995!"

AOL Buys Some Friends:

Though the story this morning about

America Online

(AOL)

and

AT&T

(T) - Get Report

allegedly beginning to work together behind the scenes on access to T's burgeoning cable-modem service has already gotten a lot of attention, another big AOL-positive story last Friday flashed by so quickly you'd have missed it if you blinked.

While still talkin' tough about efforts by

Microsoft

(MSFT) - Get Report

and

Yahoo!

(YHOO)

to allow their instant-messaging users to talk to AOL's IM crowd, America Online last week bought some friends, clearly eager to strengthen its hand in this strange war against an open Net.

AOL joined Friday with

Mindspring

(MSPG)

and

EarthLink

(ELNK)

to distribute AOL's instant-messaging software, or AIM, to both ISPs' customers, beginning this fall. This adds another 2.5 million users of AIM, increasing its lead in the IM business to something past 45 million.

(The second-place slot is held down, curiously, by, ta-da!, AOL's incompatible

ICQ

-- as in "I Seek You" -- instant-messaging product, for which the company paid $287 million last year. ICQ's user base has since grown from 12 million to 40 million-plus today. Why the heck does AOL maintain both products? No one knows. If AOL showed more interest in either helping develop industry standards for open-system instant messaging, or even indicated it was working toward fusing its two internal IM products, this could look like a smart strategy. As it is, it looks as if AOL shops too often at yard sales, then dumps its purchases on a high shelf.)

Whatever the shortcomings of its IM strategy, AOL keeps hitting the good-news button -- as evidenced in Friday's MSPG-ELNK deal, this morning's rumored work with AT&T, last month's link with yet another RBOC,

Ameritech

(AIT) - Get Report

, for DSL access, and much more -- yet the naysayers' fears keep pushing AOL down. Strange world.

AMD ... Again:

I know, I know,

AMD

(AMD) - Get Report

has been the ultimate heartbreaker. For me, too. But today the chipmaker is rolling out its new 650-MHz

Athlon

(formerly K7) superchip. According to early

tests, the chip is as much as 13% faster than

Intel's

(INTC) - Get Report

current top of the line CPU, the 600-MHz Pentium III.

This is a big chance for AMD in more ways than one. In the past AMD's overhyped Intel-compatible CPUs have generally been late, and often, losers. Most recently, AMD has been successful in grabbing market share at the bottom end of the market, persuading PC makers such as

Compaq

(CPQ)

and others to put AMD CPUs in their bargain-priced machines.

But in the chip business, nearly all the money -- and

all

the leverage -- is at the top of the line. Indeed, because previous AMD chips have been, to put it gently, focused on the bottom quartile or so of PCs, in terms of price/performance, Intel's been able to whack AMD by aggressive price-cutting, pushing its faster chips downmarket and downpricing quickly enough to cut off many market opportunities for AMD. And keeping the fat profits from top of the line CPUs for itself.

Now AMD stands for the first time in the PC era at the top of the heap, with the world's leading Windows/x86-compatible CPU. The test for AMD now is managerial and strategic, not technical: Can

Jerry Sanders

and his battle-weary troops build with high-enough yields, manage pricing effectively and persuade major PC manufacturers to try AMD in their top of the line boxes?

Past experience leads me to fear another series of fumbles. AMD's front office has dropped the ball far more often than have the people in the design labs and chip foundries. Still, strong competition for Intel leads to a healthier chip marketplace and possibly to investment opportunities for those not burned too badly in past AMD debacles.

Tread carefully ...

Tech Link:

If you think we have troubles in the U.S. with piracy of digital music and have come up with some answers that may be on the heavy-handed side, consider what's happening in China, where music exec

Jia Wei

of

Magic Stone Records

says the ratio of fakes to authentic CDs is as high as 10 to one. An online petition,

Salon Magazine says, has been started to use peer pressure among Chinese young people to discourage them from ripping CDs to MP3 files and passing them around. Hmm. Why do I think that wouldn't work here?

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Lucent, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.