3Com files to spin off Palm Computing in IPO
3Com takes a major step toward emancipating its Palm Computing subsidiary, filing to sell shares of the handheld company to the public in what is expected to be a hot IPO.
Palm will attempt to raise $100 million in the initial public offering, according to the registration filed with the Securities and Exchange Commission. Palm Incorporated, as the new company will be called, will trade under the ticker symbol PALM, according to the filing.
Acquired by 3Com in June of 1997 as part of the buyout of then-parent company US Robotics, Palm Computing makes a popular line of handheld computers that competes with Microsoft-based products from Casio, Hewlett-Packard and Compaq, as well as Palm operating system licensees Handspring and TRG. Handspring too is slated to go public early next year, in another highly anticipated IPO.
Once designed for the sole purpose of organizing personal and business information and contacts, the Palm-based devices have morphed into a computing platform in their own right. Palm's devices can now be used as a simple and relatively inexpensive way to access email, corporate databases and news via wireless Internet.
"What's actually going to be huge about it, I'd guess, is that the IPO has both Internet cachet and actual profitability," said Will Nelson, editor of smaller.com, an online handheld computing resource and e-commerce site, referring to the company's hardware and its burgeoning Palm.net business. "Which is almost unheard of," he added.
During the last year, the company has attempted to diversify its business by launching the Palm.net wireless Internet service for its Palm VII line of organizers, as well as aggressively push its licensing business, signing up partners such as Handspring, Nokia, Sony and TRG.
Palm will likely benefit from a market seemingly keen for high-tech firms. "Given the market these days, it will probably be a great IPO," said Craig Johnson, of the Pita Group. "Everybody loves PalmPilots. It will be like Linux--all the techies out there in the world and the financial guys who use them will buy the stock."
Palm, headquartered at 3Com's Santa Clara, Calif., offices, lists America Online, Motorola and Nokia as major investors in the company. Together, the companies have the right to purchase up to 4.5 percent of Palm's stock in the IPO, not to exceed a total investment of $225 million.
The company has shipped 5 million PDAs to date, according to the SEC filing, with revenues growing from $1 million in 1995 to $563.5 million last year. Palm reported operating losses from 1992 until 1998, when it reported net earnings of $4.1 million. The company reported earnings of $29.6 million last year.
10/23/99 |
But the company is hardly fully diversified: For the quarter ending Aug. 27, Palm admits that 99 percent of its revenues came from selling handheld devices. In addition, distributor Ingram Micro made up 35 percent of Palm's revenues for that quarter and 24 percent of all revenues in 1999.
In going after software licensees and boosting its wireless Internet services, Palm is also going to run smack into another competitor: Microsoft. Although Palm has successfully fought off attempts by the software maker to dig into Palm's market share in the handheld market, Microsoft has indicated it has no intention of ceding the wireless market. Toward that end, Microsoft last week announced a broad pact with Swedish cell phone maker Ericsson to develop wireless products based on Microsoft software.
Another factor that may give potential investors pause, according to the filing, which is designed to lay out all possible risk factors, is the ongoing management upheaval. Today's filing coincided with the first day of Palm CEO Carl Yankowski, who takes the helm from recently appointed president Alan Kessler. Before Kessler, the company went through three chief executives.
One huge beneficiary of the IPO is likely to be parent company 3Com, analysts say. Although Palm will have to navigate significant issues in divorcing itself from 3Com, especially as it attempts to replace its parent company's infrastructure and human resource services, 3Com will likely have a much smoother time. In fact, since 3Com announced the Palm spin-off in September, its stock has shot up 67 percent, from about $27 to $45. Pita's Johnson believes the price has risen because 3Com shareholders get a majority stake in the new Palm company.
Erik Suppiger of Hambrecht and Quist said spinning off Palm allows 3Com to focus on its core strengths: networking equipment. "The core company still has challenges, but it's positive that they are going to be able to focus more on their core operations," he said.
News.com's Wylie Wong contributed to this report.