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Technical Insight

Mixed fortunes for latest floaters

Rubicon, Infinera and IPG Photonics are all new to the stock market in the past year. So how did they all perform?

After going a good few years with barely any compound semiconductor companies going public, the last 15 months or so have witnessed a bit of a change. Photonic integrated circuit innovator Infinera, sapphire substrate specialist Rubicon and fiber laser manufacturer IPG Photonics all listed on the Nasdaq exchange in the US, while 2008 should see at least one more addition when Emcore hives off its photovoltaics unit as a separate entity.

So, how did these new stocks do? Given the great volatility of global markets in the past year, that is not an easy question to answer. But with the Dow Jones, London s FTSE and the Nasdaq index all either flat or down over the past year, any increase in stock value could be viewed as a success.

When it listed back in June 2007, Infinera initially took the market by storm, rising from its IPO price of $16 per share to more than $25 in no time, and outperforming all of the indices for the next couple of months. Since the turmoil of the late summer, however, that price has largely headed south and, as pessimism took a wider hold, Infinera dropped below the $10 mark – 50% below its IPO list price.

Is that a fair reflection on Infinera s performance since going public? Certainly not, would be my view – it may have burned through a large pile of cash during its formative years, but Infinera really does seem to be finding its place in the optical communications industry now. With its client base expanding quickly and its reliance on a handful of major customers shifting to a much more balanced portfolio, it is beginning to look like a force to be reckoned with.

IPG Photonics floated at the very end of 2006 with a launch price of $25. Like most stocks it enjoyed an early boom, but since then it will have disappointed investors. Again, when looking outside general market strife, it is difficult to see why that is. After all, IPG has pretty much cornered the market for high-power fiber lasers and, as a vertically integrated company (it manufactures high-power GaAs laser diodes using MBE at its headquarters in Oxford, Massachusetts), it is also in control of its key supply line.

At the Photonics West exhibition in San Jose in January, IPG indicated a strategic change when it revealed plans to enter the merchant high-power laser diode market, rather than using all of the diodes that it produces internally. Whether the decision reflects lower than expected internal demand following significant expansion remains an open question.

Either way, like Infinera, its stock has underperformed the major indices since that launch, possibly reflecting the negative sentiment around some of the end markets that IPG serves. One application area in which IPG is thought to be increasingly finding its feet is automobile manufacturing. Perhaps the worries of the impact of a slowing US economy on the car industry are weighing down the stock.

Sapphire substrate vendor Rubicon is the most recent addition to the compound semiconductor portfolio, having listed in November last year. It s early days, but, of the three recent additions, Rubicon will have pleased its investors the most, and by early February it had registered a 73% gain on its $14 launch.

That increase could be a direct result of its exposure to the market for high-brightness LEDs. Certainly a comparison with Cree s recent stock performance appears to confirm this – the two stocks have tracked up pretty much identically for the past three months (figure 2) at a time when many others had been crashing through the floor.

While it might make sense for investors to peg Rubicon shares with those of the leading LED maker Cree – despite the latter s use of SiC, not the sapphire material sold by the Illinois-based firm – Rubicon has tough competition in the sapphire substrates field.

Strangely then, the two companies who are market leaders in their own niche have slumped in value, while the one with a smaller market share and the toughest competition is flying high. My guess is that IPG and Infinera may well end up being the better long-term investments, so remember folks: the price of stocks can go up, as well as down.

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