Internet shares race further ahead

MATHEW HORSMAN

Internet stocks in New York and London yesterday raced sharply higher for the second consecutive day, fuelled by a downgrading of software giant Microsoft by investment house Goldman Sachs.

According to City and Wall Street analysts, Goldman's decision to take Microsoft off its list of "recommended" stocks focused attention on small companies involved in providing Internet services.

The list includes companies likely to outperform the market by at least 10 per cent. Microsoft had been included ever since it came to market in 1986.

Shares in UUNet Technologies, the Internet service provider, rose in morning trading by $5 to $95 on Nasdaq, and were still trading midday at about $93. The rise had an immediate effect on UK-listed Unipalm, the Internet service provider, which is being bought in an all-share deal by UUNet.

In London, Unipalm shares rose to 110p to 865p, largely on the strength of UUNet's share performance in New York. The US company has offered 0.154 shares per Unipalm share, and has recieved acceptances in excess of 90 per cent. Since the offer was launched last month, the offer has leapt in value from about 450p a share.

"All the technology stocks are rising in New York," said one analyst. "There's an expectation that there will be high growth across the sector." The best-known Internet stock of all, Netscape, rose $6.5 to $107.25 by lunchtime.

The Internet, which can link computers around the globe, has attracted huge investment from hundreds of small companies in sectors ranging from access and navigation software to network development and graphics for "pages" on the Internet. Well-capitalised companies such as Microsoft and MCI, the US long-distance telephone operator, have also invested heavily.

The Microsoft Network was launched this autumn, helping to fuel the craze for Internet-related stocks. But Goldman Sachs downgraded Microsoft in light of the "serious threat" posed by the smaller companies that dominate the Internet software sector.

Richard Sherlund, author of the Goldman Sachs report on Microsoft, said the software giant had been slower than other companies to introduce products for the global computer network. He fears the company's rapid growth in the past 10 years may not be sustainable as competition in the Internet sector increases.

According to John Sidgmore, chief executive of UUNet: "It is not necessarily true that the big guns will win. Microsoft and Intel were small once, and they walked off with the cheese."

UUNet is seen as a particularly strong player in the Internet market because of its focus on business customers and its alliance with Microsoft, under which it developed and operates an access network for MSN.