....Even without Springboard add-ons, Visors could have an impact on the market. They are priced lower than comparable Palm III models, which feature two to four megabytes of memory and sell for $229 to $369.
Palm is expected to lower the price of its low-end Palm IIIe to about $199 later this fall.
"It'll rip the hardware business out of 3Com," predicted Ken Dulaney, vice president of mobile computing at research firm Gartner Group Inc. in Stamford, Conn....
September 14, 1999
Tech Center
Palm Computing Plans an IPO
And Gains a Flashy New Rival
By LISA BRANSTEN and SCOTT THURM
Staff Reporters of THE WALL STREET JOURNAL
Competition is revving up in the hot field of hand-held computers, and a changing lineup of players promises to transform the market's dynamics.
3Com Corp., pioneer of the field, Monday said it would spin off its highly visible and fast-growing Palm Computing division, which never seemed to fit inside the maker of computer-networking gear. The spinoff is scheduled for next year.
Meanwhile, the founders of Palm Computing, Donna Dubinsky and Jeff Hawkins, who left 3Com last year because of its refusal to spin off the division, Tuesday will unveil a competing device, the Visor, that uses Palm software licensed from 3Com. They hope to take their new company, Handspring Inc., public next year as well.
The moves underscore the heightened interest in making computing more pervasive and portable, as start-ups and established players such as Microsoft Corp., Yahoo! Inc. and America Online Inc. try to make the Internet accessible everywhere. Others are adding Palm's personal-organizer software to cellular phones and bar-code scanners.
1Join the Discussion: How can Palm Computing fend off the challenge of Handspring and other competitors?
Palm created the market for hand-held organizers with its Pilot devices and remains the dominant player, with more than four million units sold in the past three years.
3Com, based in Santa Clara, Calif., acquired the unit as a little-noticed part of its 1997 merger with U.S. Robotics Corp., and it quickly grew to almost 10% of 3Com's sales in the fiscal year ended May 28.
Palm had little connection to 3Com's traditional businesses of making adapters and switches to link computers. But 3Com Chief Executive Officer Eric Benhamou repeatedly painted Palm as one focus of a revitalized 3Com. It was because Mr. Benhamou felt so strongly about this that he rebuffed spinoff suggestions from Ms. Dubinsky and Mr. Hawkins last year, precipitating their departure to start Handspring.
In signaling his change of heart Monday, Mr. Benhamou said 3Com expects to conduct an initial public offering of as much as 20% of Palm's shares early next year and to spin off the remaining 80% or so to 3Com shareholders later in 2000.
In an interview, Mr. Benhamou said "the timing was not right" to spin off Palm until now. With sales of $570 million last fiscal year, he said, the unit has only recently reached "critical mass."
Another factor: An independent Palm looking forward to an IPO will find it much easier to recruit talent in options-obsessed Silicon Valley than 3Com, whose shares have fallen by roughly half in the last two years.
2Plug-Ins: Check out a list of products being developed to plug into the Handspring Visor
3Head of 3Com's Palm Unit Quits After Only Five Months (July 1)
Among the vacancies at Palm is the post of chief executive officer. 3Com named two board members and a chief financial officer for the Palm spinoff, and it said Alan Kessler, president of the Palm division, would continue in that role while the company looks for a CEO. Mr. Benhamou said he wasn't a candidate for the Palm job.
Investors seemed to like the plan. 3Com shares rose $1.625 to $28.875 in Nasdaq Stock Market trading Monday.
Analyst Paul Sagawa of Sanford C. Bernstein & Co. said 3Com is worth more as two pieces than as one. "I think it's unlocking value for shareholders," he said.
Handspring's Visor builds on the Palm software technology and adds a new element: the ability to morph into a range of devices by plugging hardware modules into a special slot. The add-ons, for example, can turn the Visor into a digital music player, a pager or a location-finding device.
Significantly, the Visor is designed to automatically recognize and interact with the accessories. Unlike personal computers and other hand-helds that can be adapted to run secondary devices, consumers don't have to install or configure any software to convert the Visor into, say, a digital music player.
"This is like 1982 in the personal-computer world when Compaq, Dell and Microsoft hadn't really been created yet," said Handspring's Mr. Hawkins.
Handspring will start accepting orders for the new devices Tuesday for October delivery. Until the start of next year, Visors will only be available through the Handspring Web site.
Except for the slot, dubbed Springboard, the Visor looks quite a bit like Palm's Palm III devices and works in much the same way. It has somewhat souped-up versions of the familiar calendar, "to do" list and address book, and will also synchronize data with a PC at the touch of one button on a cradle connected to a consumer's desktop or laptop.
Visors will come in three classes: the basic version with two megabytes of memory will sell for $179; a Visor Solo, which also has two megabytes of memory but comes without a cradle and will sell for $149; and a Visor Deluxe, which will have eight megabytes of memory, includes a leather case and comes in four colors of translucent plastic and will sell for $249.
Handspring says it has about 15 partners readying Visor add-ons, including a pager company, two makers of digital music, or MP3, players and a maker of modules for the new device, although few are expected to be ready immediately. A module that will transform Visors into portable phones will be ready sometime next year, Mr. Hawkins said.
Diamond Multimedia Inc., which makes a leading digital music player called the Rio, is making a module for the Visor that also uses the MP3 music format. That device will be available after the start of next year and will sell for less than $250, which combined with the cost of the Visor makes it much more expensive than existing Rios, which sell for $169-$269. But Mike Reed, a Diamond marketing director, predicted the module would expand the market to businesspeople who use a digital organizer but haven't previously bought the Rio.
Handspring is making some of the accessories itself, including a game cartridge and a device for backing up data on the Visor.
Even without Springboard add-ons, Visors could have an impact on the market. They are priced lower than comparable Palm III models, which feature two to four megabytes of memory and sell for $229 to $369.
Palm is expected to lower the price of its low-end Palm IIIe to about $199 later this fall.
"It'll rip the hardware business out of 3Com," predicted Ken Dulaney, vice president of mobile computing at research firm Gartner Group Inc. in Stamford, Conn.
At Palm, Mr. Kessler said he isn't worried. His company sees a broader battle in trying to preserve the market lead of Palm's software against competing technology from Microsoft.
Mr. Kessler said he hopes the Visor becomes popular because it will expand the number of Palm-driven devices on the market. He added, however, that Palm's hardware division intends to compete with Handspring's products.
Until a few recent leaks, Handspring had managed to keep most of its plans under wraps. Yet the company remains worried that it hasn't been able to control heightened expectations for the new product.
When the Palm was introduced, "we were very conscious of under-promising and over-delivering," Ms. Dubinsky said.
This time, however, there was no escaping the prerelease buildup. "We've not been out hyping it, and the fact that we've not been out hyping it has been interpreted as hyping it," she said.
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