Palm's IPO a hot commodity
San Jose Mercury News - Published Monday, February 28, 2000
Want in on the IPO of a tech company that has a well-known name, a wildly popular
product and -- rare these days -- profits?
Good luck getting a piece of Palm Inc. The company that brought the world the Palm
hand-held organizers spins off as a public company this week, and legions of everyday
people who trade stocks on their home PCs are looking for a way get in on the action.
Palm, a subsidiary of 3Com Corp., plans to raise about $570 million by offering 23
million shares to ordinary investors and 15 million shares to three corporate partners:
America Online Inc., Motorola Inc. and Nokia Corp. The shares will be priced between
$14 and $16, according to documents filed with the Securities and Exchange
Commission. 3Com will continue to hold 93 percent of Palm for about six months, and
then will hand over its stake to 3Com shareholders. 3Com stock has soared about 350
percent since it announced the spinoff in September.
Anticipation is so high for the new offering that one analyst at Edward Jones in St.
Louis, a financial services firm, said he takes as many as 10 calls a day from people who
want in. Even investment banks with lukewarm ratings on 3Com are getting barraged
with calls.
``It could easily be a $10-$12 billion company after one day,' said Jeffrey Susman at
Warburg Dillon Read in New York, which has a hold rating on Santa Clara-based 3Com
Corp. ``It's going to be a hot deal.'
Only investors with influential friends in finance have much chance of getting stock in
advance of such a popular offering. Andy Brooks, head of equity trading at T. Rowe
Price in Baltimore, said the last IPO that had the same name recognition and excitement
was United Parcel Service, which made its Wall Street debut in November.
``A lot of individual investors who are not able to get shares in the offering are buying
3Com right now so that ultimately they can participate in Palm,' said David Powers, an
analyst with Edward Jones. ``It's pretty obvious by now that this is going to be one of
the hottest IPOs in the tech industry.'
Powers compared the pre-IPO mood to the hype surrounding Netscape Communications
Corp. when it went public. And that comparison, while a compliment, is also a bit
sobering.
Hype like Netscape's
While Netscape didn't have any profits to speak of when it went public in August 1995,
it controlled about 60 percent of the Web browser market. Back then, Wall Street was
just getting wise to the idea that this Internet thing might be around for a while -- there
were even whispers that Netscape could be the next Microsoft Corp.
Of course, things didn't work out that way. Microsoft Corp. has snatched the lead in the
browser wars; Netscape, while still successful, has been swallowed by America Online.
Even more than Netscape did in the browser market, Palm today has a commanding
advantage in the hand-held computing arena. Palm has about 75 percent of the hand-held
market, and devices running the Palm operating system made up a whopping 91.1
percent of hand-helds sold in U.S. stores in the fourth quarter of 1999, up more than 8
percent over the third quarter, according to PC Data, a Reston, Va.-based market
research firm.
But those numbers are likely to change over time. Palm executives plan to shift the
company's focus away from selling Palm devices. Instead, Palm will become more of a
software company, licensing the Palm operating system to other companies that make
organizers and mobile phones -- and analysts say Palm will probably lose hardware
market share in the process.
Palm is not the first to make a hand-held computer, but it is the first to have much
success at it. In 1993, Apple Computer Inc. began selling one of the first palm-size PCs,
the Newton. Newton turned out to be a much-publicized flop -- it cost too much and had
trouble recognizing handwriting. Apple CEO Steve Jobs killed the project in 1998, as
part of his turnaround of the once-troubled company.
Palm did much better. The Palm Pilot was developed by Palm Computing, founded by
Donna Dubinsky and Jeff Hawkins, and hit store shelves in 1996. More than 1 million
units were sold in the first 18 months. Dubinsky and Hawkins later sold Palm
Computing to U.S. Robotics, which was in turn bought by 3Com.
Palm's success was attributed to its easy-to-use operating system and its accuracy in
handling handwriting.
Those features continue to be credited with keeping Palm a step ahead of competitors,
and have helped the company sell 5.5 million Palm devices to date. The company had
$29.6 million in revenues last year.
``To me, it's huge when you have profits and you're the leader in the industry,' said
Jeffrey Hirschkorn, senior market analyst with IPO.com in New York, a firm that
follows the market for initial public offerings. ``There really is no competitor to them, in
my book.'
Perhaps not yet -- but serious competition may be coming.
Handspring on horizon
Mountain View-based Handspring Inc., founded by Dubinsky and Hawkins, has a
hand-held device called the Visor that has sold briskly over the Internet and is due on
retail shelves soon. Though the Visor runs on the Palm OS and could help solidify
Palm's market dominance, analysts say it could also take some wind out of Palm's sails.
The Visor retails for $150, about $100 less than the cheapest Palm device.
And like Netscape, Palm faces a challenge from Microsoft, a company that tends to start
slow but eventually steamroll competitors. The Windows CE operating system, designed
to work with hand-held computers such as Hewlett-Packard's Jornada and Casio's
Cassiopeia and others, has been called too unwieldy compared to the user-friendly Palm
OS. But Microsoft announced last week that by summer it will introduce PocketPC, a
simplified Windows CE interface for hand-held devices.
Also last week, a consortium called Symbian, which includes wireless companies such
as Nokia, Ericsson and Motorola, said that by Christmas it will offer a service allowing
European cell phone subscribers to get hand-held computing and telephone services
through one device, called ``Quartz.'
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