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Technology Stocks : PALM - The rebirth of Palm Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mang Cheng who wrote (2238)	10/19/2000 9:42:06 AM
From: David E. Taylor	Read Replies (1) \| Respond to of 6784

Mang: The market is presently showing little tolerance for new companies that post increasing revenues but increase bottom line losses at the same rate, which was my main point. Unless HAND alters its cost structure, if they multiply sales 10x, they'll lose $80 million. A year ago no one could have cared a hoot for such an income statement, but we're in a different mindset now. HAND's ASP is around $150 for the two product mix they've had up to this point. I estimate they did 345,000 units in Q4, around 470,000 this Q1. I got the $13 from some earlier work I posted where I concluded OS licensing was $10-$13 per unit, and confirmed $13 from the licensing revenue PALM earned in Q1 ($4.6 million) and HAND's unit sales last Q4 (345,000), since HAND represented almost all of PALM's licensing revenues in PALM's Q1. R&D spending as a % of sales for HAND (6.8%) and PALM (7.6%) are comparable. HAND has to spend on R&D if they want to keep their noses slightly ahead on the innovation front. I don't agree with you that HAND is in a more flexible position than PALM. On the contrary, I think that as a purely retail (no enterprise plans) handheld company, they are between a rock and a hard place. Little flexibility in pricing because they have to be competitive at both the low end and the high end, they have to spend big on marketing and organization build out, and they have that built in penalty of $13/unit paid to PALM (or MSFT if they so choose), which will not only be a factor forever, but will be increasingly important as the retail market gets more competitive and GM's shrink. And that $13/unit may have been only a small 15% of PALM's R&D spending last Q, but as HAND and SONY ramp up unit sales and PALM OS finds its way into cell phones, it'll be a major revenue stream. JM2cW. David T.