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THE BELLES OF THE BULL MARKET WILL BE SMALL COMPUTER FIRMS

Investors can expect dozens of "coming out" parties for small computer firms this year as the upstarts move to profit from a rich stock market.

"Investors, chasing growth, are going after technology companies, which until recently looked cheap compared with securities of other sorts of companies," observes ComputerLetter, a New York-based industry newsletter."As the economy gives a few more hints of health, investors also are betting that technology companies will be among the first to recover from the recession."

Computer industry analysts generally agree with ComputerLetter's prediction that about 60 computer companies will issue about $1 billion in stock to the public for the first time this year.

ComputerLetter predicts the number of these initial public offerings, or IPOs, could be about twice the pace of years in the 1980s.

"They are coming public like crazy. It will probably be the biggest first quarter ever," says Michael Murphy, editor of the California Technology Stock Letter in Half Moon Bay, Calif.

Public offerings have been hot with investors looking for an attractive place to put their money, especially with the recent low yields on bonds and certificates of deposit.

Also helping the IPO trend: Investment bankers love the deals.

"People playing that market are making money," Murphy says. "Practically every deal that gets announced is selling out."

Thinking of investing in a new startup? Tread cautiously, the analysts warn, because earnings for the most attractive companies are far beyond what can be justified in the current economy.

At such high price-to-earnings ratios, ComputerLetter says, "not only does everything have to go right for these companies, but it has to go right for at least two or three more years. That is asking a lot."

Harvey L. Poppel, managing director for Broadview Associates' San Francisco office, warns that the attractive gains from going public are encouraging less stable companies into issuing stock for the first time.

"As the market gets hotter and hotter, the quality of IPOs gets worse and worse," Poppel says. Although there are some good, solid companies going public, Poppel says the prospect of weak companies coming to market "should be a major red flag for investors."

Poppel tracked several hundred information technology companies that went public between 1983 and 1990. From that research, he concluded "over half could be classified as outright losers."

"Only about 15 percent saw their valuations increase over 75 percent in that period," he says.

One company that's expected to go public this year - and do very well - is Next Computer of Redwood City, Calif., headed by former Apple Computer founder Steven Jobs, ComputerLetter says.

The newsletter said Next has promising new software recently adapted for computers based on the Intel 486 computer chip.

"This has the potential for opening a vast new market for Next...," the letter says. And Jobs' high-profile status "could make this a perfect product for a retail stock market."

The computer companies are issuing stock during a turbulent time for the industry. Last year, major computer companies like Apple, Digital Equipment, International Business Machines and Unisys all cut staff to bring production in line with the slower growth.

The industry's restructuring was symbolized by IBM's decision to break into smaller, more competitive units to adapt quickly to changing needs in the marketplace.

Poppel and other computer industry analysts say the IPOs will take place despite the turmoil.

"There are a lot niches and trends that allow some computer companies to do very well," he says. "Our industry continues to spawn hundreds of successful companies each year."