Palm/3Com Discussion Article:
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Gadgets come of age
A Silicon Investor Highlight
By David Zgodzinski
August 1, 2000
It seemed convenient enough. Drop 3Com Corp. from the S&P 500 and replace it with Palm Inc. The parent was booted out and replaced by the offspring. The timing was good, just before Palm's divestiture to 3Com shareholders. twillowy had predicted the move to the 3Com thread five days before it happened, writing on July 15. . .
IMO PALM will be included because of the market cap. and trading volume. I have no clue though if it is going to happen prior to 27/7. I am sure that there is a pressure behind the door on S&P folks from the big guys who have underwritten the spin-off to do just that and, IMO, Russell Midcap 2000 gives them extra ammunition. After all, there are being paid big bucks from shareholder money to make sure that it is done right. It will better be.
And that's just what occurred. The smooth financial mechanics must have appealed to many. 3Com was awarded the consolation prize of replacing Burlington Industries in the S&P 400. David E. Taylor previewed some of the ramifications of the S&P changes on July 20. . .
S&P index funds already have virtual ownership of most of the PALM shares they will need (through owning COMS), and that they will have to buy only a small amount. OTOH, they'll have to sell all their COMS. So the PALM addition/COMS ejection is obviously a net negative.
OTOH, the Bloomberg article indicates that S&P index funds own about 27 million COMS, and that volume could easily be eaten up in the several days of hectic trading that are bound to occur around 7/27.
The trading was hectic indeed, but the changes were smooth, even in a diving market. Still, the symbolism is peculiar. The parent is sniffling as it turns its golden child loose, and then the kid comes back and boots the old coot out of the house. That's the way it's done on Wall Street.
Palm had a wildly successful IPO at the beginning of March, when the high-tech tide was very high. The stock shot up to $165 in a gush of techno-gadget enthusiasm. Then it dropped back sharply in the spring sell-off, all the way down to $20.
But Palm is growing fast. Fourth-quarter results released at the end of June showed $350 million in revenues. Mang Cheng was impressed. . .
29% sequential growth under supplies constraints !!! What could they have done with no supply shortages ?! This stock is sure the best growth stock (Mid-to-large-cap with earnings) in the whole stock market universe but I don't know when this fact will be recognized. No kidding, within 6 months, this stock could go up to $60.
P.M.Freedman wrote to the PALM - The rebirth of Palm Inc. thread on June 29. . .
Licensing income will be able to reach or pass 5% of the total revenues! The next generation of PalmOS is on cooking, which will attract more licensees. Rapid growth of institutional users is the key to this good quarter. Revenues going double in next one year period give the Street hope! Hope brings buyers. Buyers follow hope. ALWAYS!
And P.M.Freedman added a prediction. . .
Money odor from PALM spreads all over the Street. Investors smell money. I believe that 2 billion in revenues is a number that will be beaten very easily. With NOK and MOT delivering new products with PalmOS, I am expecting 2.3 to 2.5 billion in annual revenues.
The company only made three cents a share in profits for the quarter, but never mind. People love their gadgets and Palm is the gadget King. And the company made a decision to license its software to other manufacturers, ensuring that the operating system would spread. But licensing the OS means that its own products will face competition.
Handspring Inc., which makes a competing PDA using the Palm OS, came public in June and the stock shot up in July. Denizens of the Palm thread were surprised to see the strength of the competitor's stock. egggmann wrote on June 21. . .
HAND mkt cap 3.35Bln PALM mkt cap 15.4Bln Palm is trading at around 5x the value of Handspring.
For many Palm enthusiasts, that was a surprising low ratio. On June 27, Sony released a PDA using the Palm OS that will also do battle with Palm's own products. But at the same time, Sony will pay a licensing fee. As to the amount of those fees, Ian wrote. . .
I think i remember a figure of $10/unit, but i could be wrong, and even so it was just speculation in a news article. I don't think they have or will in the future officially disclose the number as it may differ from licensee to licensee.
More ominous for Palm is the new batch of gadgets that are using Microsoft's revamped PocketPC operating system. Lucius Fleuchaus asked the PALM - The rebirth of Palm Inc. thread on July 27. . .
Any info about Palm vs. PocketPC? I have heard that PocketPC is so popular that store deliveries are usually gone at the same day they arrive. Are there any statistics or metrics that show how fast PocketPC is cutting into Palms pie?
Microsoft doesn't usually find itself in the position of operating system underdog, but that is certainly the case in the gadget market. Palm's OS is as dominant in the pocket as Mr. Softy's is on the desk. But the folks from Redmond are nothing if not tenacious. They restyled their handheld computer operating system and it's now powering popular new offerings from HP and Compaq.
advalorem, who claims to own stock in both Palm and Hewlett-Packard and owns a Palm IIIC as well as a Handspring PDA, wrote a review of a new purchase -- an HWP Jornada 545 -- comparing it to the other products. . .
The HWP Jornada is simply the best in all the needs that I need. The 545 lists for $499 & the Palm IIIC lists for $449. The HWP has 16 mb, with the ability to upgrade with flash memory (a 64 mb flash memory card was $150 at Circuit City). The HWP has an awesome color (& larger than the Palm IIIC) screen when compared to the IIIC, and the screen is much more clear than the Palm IIIC. The (Handspring)Vx costs $399, and doesn't match in value to the Jornada.
The HWP has a couple of negatives: its battery only lasts 8 hours, and it weighs 9 oz. vs. 4 oz. for the Vx.
The Palm products may be simpler to use (due to the Palm OS), but their functionality & storage is limited. The Palm products should be priced less to match the price-to-value that the HWP Jornada offers. Take a look at any store, and just hold the Jornada & the top of the line Palm _ and the difference is obvious!
These were frightening words from a Palm shareholder.
What's worse is that Compaq's iPaq Pocket PC, which was released in June, has even better reviews than the HP Jornada. It weighs 6 ozs., has 32 Mb of RAM, and a 200 mhz Intel StrongARM CPU, and comes bundled with miniature Microsoft software including a Web browser.opalapril wrote on July 17. . .
So many PDA users have been telling me the same thing: Compaq's screen is markedly better. Hope to find out why. If more than one manufacturer is behind it, I suppose that means the secret is in Compaq's specs.
While Palm's dominance is overwhelming, it does appear that the gadget market is finally seeing some real contenders. But Palm has seen this coming and is moving in a big way toward the gadget being more than just a PDA. lkj wrote on July 2. . .
One day, the Palm licensees will compete against each other, and this will be the day that Palm exits the PDA hardware market. We maybe a couple of years from this day, because the number of Palm-enabled markets is so huge. One day, Palm OS will sit on all mobile computing devices, from digital imaging products to medical equipments. With Sony and Handspring, we have only gotten a glimpse of the greatness that the Palm platform will show. It is going to be a Palm Palm World!
In pushing wireless connectivity, Palm is not waiting for Nokia or Sprint to make the moves. It is inventing the wireless data computing market itself.
Palm is forging ahead with Internet connectivity. P.M.Freedman wrote on July 8. . .
Omnisky provides PalmV unlimited wireless access at $39.95/mo
Omnisky is a company that is partially funded by 3Com, Palm's almost forgotten parent. A week later, P.M.Freedman added. . .
The more the wireless ISP are, the better the PALM sales will be. Verizon to launch wireless web services.
Souze wrote on July 25. . .
This quote from today's online wsj, in an article written by Rebecca Buckman, illustrates why Palm's deals with cell phone companies are important.
The article stated that Gartner is predicting 2003 cell phone sales will hit 700 million units, with 80% allowing Internet connectivity. Sales of PDA's in the same year are expected to reach only 30 million units. Souze added in a later post. . .
It's good for PALM that PalmOS will run on both phones and PDAs.
When Nokia announced a letdown in cell phone sales on July 27, P.M.Freedman saw it as good news for Palm. . .
Nokia said that customers delay mobile-phone purchases awaiting new products. It's a good news for PALM. NOK's new products with PalmOS should hit the markets soon.
What is the ideal gadget, the perfect portable device? Is the one-gadget-does-all design better, or a handful of specialized items, one for each pocket? OWN STOCK had some advice for the design teams at Palm, writing on June 30. . .
Would be great to see Palm viewed as a platform, not a (essentially single) product. Need new products, like: wireless laptop version of the Palm with a usable keyboard.. . like the IBM Z50 was...but better. . .
a pcmcia card for brand x portables, with application software to turn them into palms. . .let other companies think they are making final product!
a module sitting next to my desktop, plugs into my USB, turns my desktop into a palm, complete with wireless.
These may or may not be the kinds of features that most customers want. Everyone has a different concept of functionality. Some may like more features, others less.
Meanwhile, separated from the golden child, the spurned parent has to establish its own identity again. In March, 3Com decided to close down its enterprise networking division, laying off a quarter of its workforce and throwing in the towel against arch rival Cisco.
Now Palm has been spun off, and 3Com's stock is back in the teens. As far as investors are concerned, David E. Taylor wrote...
3Com has burned the analyst community before, so I expect a "wait and see, show us the money" attitude.
But the company is sitting on billions in cash and is still ranked as the number-one small business networking company. And 3Com may have a few tricks up its sleeve. On May 15, the company announced that its Internet appliance division had formed a partnership with QNX, a company that designs mission-critical software, to produce simple wireless Internet access devices.
If the network is the computer, then the airwaves are the gadget. And high-speed wireless Internet access may be the only application that users really need. Just like Microsoft's dominance of the desktop OS becomes less important in the wired world, Palm's dominance of the gadget OS could be threatened by wireless Internet access. Perhaps 3Com will find success again with its Internet gadget, this time taking business away from its offspring.
Discussion Threads
3Com
PALM - The rebirth of Palm Inc.
SI Members Featured
twillowy
David E. Taylor
Mang Cheng
P.M.Freedman
egggmann
Ian
Lucius Fleuchaus
advalorem
opalapril
lkj
Souze
OWN STOCK
Are there some new developments on your thread? Radical personalities? Hot New technologies? Takeovers? Scandals?
Please let us know. All stories are welcome.
Dave Zgodzinski
DISCLAIMER
All quotations from threads are the opinions of the members who made them. No attempt has been made to verify the accuracy of these statements. No investment advice quoted on the threads is endorsed by the writer or Silicon Investor. The statements are included strictly for entertainment purposes. |
