The Day Ahead: Sequoia Software hopes XML = hot IPO

Is the price right for Sequoia Software's initial public offering? The company had to lower its asking price, but could do well considering it's a XML e-business software company.

Sequoia is set to offer 4.2m shares expected to price late this week between $8 to $10 (£5 to £6.50). The price range was lowered from $11 to $13 last month. Lehman Brothers is the lead underwriter.

So what gives Sequoia the confidence to go public in a turbulent market? The right buzzword: XML, also known as Extensible Markup Language. XML is a more limber version of HTML.

The company, based in Columbia, MD, provides XML-based Internet software to create e-business portals. The idea here is that businesses can use Sequoia software to create a hub where employees, customers, suppliers and partners can interact, share information and boost productivity.

"We believe that establishing an interactive portal is critical for many businesses, institutions and governments to compete," the company said in regulatory filings.

Sequoia's flagship product is the XML Portal Server, or XPS, which the company said is "the first interactive portal software product that uses XML as its core technology." The company has marketing and technology ties to Microsoft.

"XML is becoming well established as a B2B architecture," said Stephen Sigmond, an analyst with Dain Rauscher Wessels, who covers WebMethods.

In fact, WebMethods' IPO success could be one of the main reasons Sequoia is making it out the door. WebMethods currently trades around 95, up more than 140 percent from its February offering price of $35. Of course, WebMethods peaked at more than $336 a share, but the market has kept some faith.

In its fourth quarter earnings report last week, WebMethods said revenue increased 360 percent to $10.4m, compared to $2.3m a year ago. The company lost 21 cents a share, but easily topped estimates.

If Sequoia can capture just a portion of WebMethods' XML buzz, it could have a successful IPO. Sequoia is hoping to raise $33.7m with its offering. Like WebMethods, however, Sequoia is a work in progress.

For 1999, Sequoia reported sales of $8.4m and a loss of $12.8m. The company also has an accumulated deficit of $26.6m. Licensing revenue accounted for 51.6 percent of sales with services representing 39.8 percent and hardware as the remainder.

Sequoia also relies on a limited number of customers. The company's top ten customers for 1999 accounted for 73 percent of sales. Blue Cross/ Blue Shield of Minnesota accounted for 23.8 percent of revenue and the State of Texas accounted for 12.2 percent. Other customers include General Electric and DuPont. "We expect that a limited number of customers will continue to represent a material percentage of revenues for the foreseeable future," the company said.

In addition, the company's close ties to Microsoft could hurt Sequoia's expansion prospects. Sequoia built its XPS product to operate on the Windows NT/Windows 2000 platform. That focus leaves XPS out of the popular Linux and Unix markets.

Sequoia will also face some tough competition. The company said it doesn't have competition right now, but expects rivals soon. "We face current or potential competition from large software vendors, vendors of proprietary enterprise application integration and application server products, in-house divisions and others that intend to add XML capabilities to their products," the company said.

Excite@Home: Yet another change

The Wall Street Journal reported Monday that Excite@Home Chairman Thomas Jermoluk has stepped down. No surprises there.

Jermoluk has been on the way out for awhile. First, he hands over the reins to CEO George Bell. Then, Bell swings a deal that gives AT&T a lot more control over operations.

Jermoluk, however, does seem to be going out just at the right time though. Excite@Home recently said it would report losses for the next few quarters to expand abroad. Now Bell gets all the headaches.

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