Just call it IPO window-shopping. Investors might have the money and wherewithal to dump cash into new stock offerings, but they seem content just to keep their hands in their pockets as the Nasdaq and Dow Jones continue to meander aimlessly, with no sign of selecting an identity anytime soon.

"It's a sloppy market with a mixed bag of earnings," says Brian Anderson, head of technology capital markets at U.S. Bancorp Piper Jaffray in Minneapolis. "But there is still good cash [flow] in the market." Pointing to the approximately $5 billion currently flowing into mutual funds in the U.S. in recent weeks, Mr. Anderson says that strong cash flows are pushing portfolio managers to search the IPO market for quality deals.

The search this week uncovered Transmeta, which still fared extremely well on its opening day despite concerns over the chip maker's ability to capture the business of some of the big names on the street after IBM announced that it had canceled plans to use the company's Crusoe family of computer chips in its product line.

KEEPING A COOL HEAD

Nevertheless, the chip is still viewed by many, including Sony, Fujitsu, and NEC, as the key to the next generation of ultralight laptop computers because of its ability to run at a cooler temperature and conserve more battery power than its counterparts on the market today. Certainly the news left a bad taste in the mouths of many investors who expected this week to be a breakout session for the IPO market with Transmeta leading the charge. Although the excitement surrounding the IPO market quickly faded when the news about IBM became public, Transmeta still managed to post an extremely impressive opening-day gain of 115 percent.

Indeed, if there was a drop-off in enthusiasm as Transmeta failed to secure its investors as customers, it was not evident in the pricing of its offering. The 13 million-share offering, co-led by Morgan Stanley Dean Witter and Deutsche Banc Alex. Brown, was originally slated at a price range of $11 to $13 per share. Even as investors absorbed the IPO news, the offering range was raised to $16 to $18 before the deal was finally priced at $21 on Monday evening.

It was evident that investors wanted to get in on a winner after a tough October. Mr. Anderson says that there was clearly a shortage of strong offerings available to investors throughout the month of October as a record 35 companies pulled their offerings -- totaling $8 billion -- from the pipeline. None of those that did make it to the market in October managed to post an opening-day gain of 100 percent -- the first time in more than two years that no one has made that mark in a given month, according to Mr. Anderson. With such a mixed investment environment, it's clearly a buyers' market that will only support the best deals.

This change is one that is welcomed by Lou Giglio, senior portfolio manager for the American Express Innovation Fund. According to Mr. Giglio, there are far too many companies in the pipeline that don't deserve to come public at all. He would prefer to see underwriters market a lower quantity and higher quality of offerings. Whether or not Mr. Giglio and investors get their wish remains to be seen, but if this past week was any indication of the new face of the IPO market -- quality could finally be the catch phrase again in the market.

WINDOW AIN'T SHUT YET

Despite the lingering skepticism toward offerings in the IPO pipeline, Joe Misset, head of the syndicate in the capital markets group at CIBC Oppenheimer in New York, says that the "merry-go-round has not stopped yet," pointing to the number of deals that are still getting done in spite of the overall weakness in the broader market.

To be sure, there were four other offerings that squeaked down the pipeline this week -- but they were nowhere near the level of Transmeta's 115 percent opening-day gain. While Mr. Misset's point is well-taken, companies not receiving vast amounts of publicity -- as Transmeta did -- are still being force to settle for more modest valuations and lukewarm receptions.

This was the case this week with Computer Access Technology, a Santa Clara, California-based provider of advanced verification systems for existing and emerging digital communication standards such as Bluetooth. Although Computer Access Technology is already profitable, the company was forced to price its 3.5 million-share offering at $12 -- the bottom of its offering range of $12 to $14.

And while the company may not have been able to price its offering at upper end of the range, the stock opened trading on Friday at $13.06 and climbed as high as $17.25 in midday trading, a solid 44 percent gain over offering.

That same level of aftermarket support was not present for Luminent in its debut on Friday. The Chatsworth, California-based company makes single-mode fiber-optic components for the metro and access portions of a network. With such a striking similarity to the offering from Oplink Communications on October 4, investors were no doubt scratching their heads at why Luminent, a subsidiary of MRV Communications, did not jump 86 percent in its debut like Oplink did last month.

Luminent was forced to follow the lead of Computer Access Technology by accepting a reduced valuation. The 12 million-share offering led by Credit Suisse First Boston priced at $12, below its $13 to $15 range. The modest pricing proved correct as the shares opened for trading on Friday at just 6 cents over the offering price. The flat performance for Luminent continued throughout the day as the shares only reached a high of $12.75 and fell in midday trading below the offering price, to $11.81.

Clearly the last few weeks have witnessed a shift in the confidence of investors in fiber-optic companies. In many ways these players are no longer viewed as invincible or bulletproof as was the case earlier in the year. A quick look at the continued choppiness of JDS Uniphase, Nortel Networks, Corning, and Cisco Systems tells the story pretty clearly.

It is no longer enough for an investor to dump money into anything optics-related and expect an automatic gain. Investors need to sift through the mass of optical players and find the company with the right product mix and the right management team. The weaker players will quickly be left behind as time passes and consolidation picks up.

If the speculative nature of the IPO market is fading away, that should be viewed as a good thing, even if it is not what companies in the pipeline want to hear. Quality investments are what investors want, and it looks like they may finally get them. As such, investors just need to keep their eye on the calendar and their head in the fundamentals.

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