Technology News
Wed, 16 Feb 2000, 3:58pm EST
3Com Shares Rise on Investor Optimism for Palm Initial Public Offering
By Justin Baer
3Com Shares Rise 7.5% on Optimism for Palm Unit's IPO
Santa Clara, California, Feb. 14 (Bloomberg) -- 3Com Corp.
shares rose 7.5 percent as investors bought the stock to get a
piece of the company's Palm Inc. electronic organizer unit, as
3Com prepares to sell Palm shares to the public in two weeks.
3Com climbed 4 11/16 to 67 after touching 70, the highest in
three years. The shares have gained 43 percent this year. In 1997,
the stock was the second-worst performer in the Standard & Poor's
500 Index behind Cabletron Systems Inc.
The company is selling 23 million shares of Palm, maker of
the world's best-selling handheld organizer, with more than 60
percent of the market. By buying 3Com shares now, smaller
investors can avoid being shut out of the IPO, which some analysts
expect to be among the year's most successful.
``There has been a groundswell of optimism about this,' said
Sally Anderson, a money manager for Kopp Investment Advisers,
which owns 1.59 million 3Com shares. ``Palm is going to be one hot
cookie.'
3Com said it plans to sell the Palm shares at $14 to $16
apiece. The shares will be priced on March 1 and begin trading
March 2, according to Goldman, Sachs & Co.
``There's a continuing realization that Palm has real
value,' said Patrick Houghton, group head of technology research
at Sutro & Co. ``It's going to be pretty hard to get shares at
that (the IPO) price.'
3Com will keep about 93 percent of the shares outstanding and
spin them off to shareholders about six months later.
Buying Now
Buying 3Com now gives investors shares that could rise
further when Palm begins trading, analysts said.
Peter Lieu, an analyst at Needham & Co., said he values Palm
at about $10 billion, and demand for the shares could push its
market value to $20 billion to $30 billion. He predicts Palm will
have about $1.5 billion in revenue in its fiscal year ending in
May 2001.
Based on 570 million Palm shares outstanding, a share price
of about $53 would be necessary for a $30 billion market value.
3Com's market value stands at about $23 billion. Revenue in
its fiscal year ended last May was $5.8 billion.
Charles Morris, manager of the T. Rowe Price Science and
Technology Fund, said in a New York Times article yesterday that
he expects Palm will be worth $70 to $100 a share.
Surging Sales
Sales at Palm rose 77 percent to $261 million in Santa Clara,
California-based 3Com's fiscal second quarter.
That increase came as 3Com's total revenue declined 4.3
percent to $1.47 billion. The company has been dragged down by
falling prices of dial-up modems and cards that connect computers
to networks. It fell behind Cisco Systems Inc. and other rivals in
the market for powerful network switches and routers. 3Com is No.
1 in networking equipment for small businesses.
``The rest of 3Com's business may not be all that attractive,
but who cares when you've got such a hot property?' Kopp's
Anderson said.
3Com is betting on products such as modems for fast Internet
access through cable TV and special phone lines, as well as phones
that operate on computer networks instead of traditional phone
lines. Products from 3Com's several small but fast-growing
businesses now constitute ``a small percentage' of revenue, 3Com
said in December.
Given 3Com's $2.5 billion in cash and small but fast-growing
businesses, ``you've got quite a bit of upside left' in 3Com
shares, said Lieu. |
