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Published in Print: February 18, 2004, as Analysts See AlphaSmart Public Offering as a Sign Of Better Times

Analysts See AlphaSmart Public Offering as a Sign Of Better Times

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AlphaSmart Inc.—which provides battery-powered laptop devices used in schools for word processing, calculating, and quiz taking—sold its shares publicly for the first time on Feb. 6. That move, business observers say, shows that K-12 education ventures have not been left out of the revived market for initial public offerings of stock.

They say the launch suggests that investors are intrigued by schools' interest in having classroom sets of portable computers, or even a laptop for every student—a trend slowed by tighter school budgets and the high cost of full- featured laptops, such as PCs or Apple iBooks.

AlphaSmart, founded in 1992 by former Apple Computer engineers, produces cheaper, simpler devices that aim to provide some of the same educational benefits, an approach one analyst called "low-tech/high-tech."

Some educators speak favorably of the simplicity and effectiveness of the Los Gatos, Calif.-based company's line of AlphaSmart "laptop alternatives." The company has sold more than 1.2 million AlphaSmarts, and its newer Dana laptops, to about 7,500 U.S. school districts over the past decade.

The Opening Price

"Clearly, they know the school market," said Trace Urdan, a senior analyst at ThinkEquity Partners, an investment firm with headquarters in San Francisco.

AlphaSmart Inc.
Employees: 90
Headquarters: Los Gatos, Calif.
Total revenue (2003): $39 million
Nasdaq symbol: ALSM

Yet investors greeted the launch with restraint. The $6 share price of the Feb. 6 sale of 4.4 million shares fell short of the $8 to $10 AlphaSmart had been predicting. Although 1.7 million of those shares, listed as "ALSM" on the Nasdaq exchange, changed hands the first day, nudging the price upward, by the middle of last week it had returned to $6.

Mr. Urdan said the low price and the fewer-than-expected shares put on the market reflect uncertainty about the $39 million company's revenues over the next couple of years as it shifts from emphasizing the AlphaSmart 3000, which costs $200, to the Dana, which starts at $379.

The Dana, introduced in 2002, uses the Palm operating system, allowing it to run software written for Palm handheld computers, the company says. Yet the Dana retains the wide screen and full-size keyboard that students may find easier to use.

One Dana model is equipped for wireless networking, tapping into another trend in school districts nationwide.

But the company faces many competitive risks, starting with the possibility that districts may instead buy handhelds or more powerful and versatile laptop PCs or iBooks, which boast larger arrays of educational software.

'Clearly a Positive'

Matt Stein, a senior analyst at Eduventures, a Boston-based consulting firm, said AlphaSmarts and Danas strike "close to [educators'] sweet spot" as writing tools but don't offer graphics or color—functions that educators also want.

"The fact that the [stock] launch got done at all, it's clearly a positive," Mr. Urdan said. "It's up to management to prove their thesis."

AlphaSmart officials declined to comment, saying they are still in a legal "quiet period" surrounding the stock launch.

Vol. 23, Issue 23, Page 18

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