Handspring (Nasdaq: HAND) closed up 6 15/16, or 35 percent, to 26 15/16 Wednesday after it priced shares of its initial public offering at $20 each for trading Wednesday.
Handspring, which makes the Visor handheld organizer, offered 10 million shares. The IPO priced above the price range of $17 and $19. The price range was recently lowered from $19 to $22. CS First Boston is the lead underwriter.
The company, cooked up by Palm (Nasdaq: PALM) alumni Jeffrey C. Hawkins and Donna L. Dubinsky, is in a hot market, but has losses.
For the nine months ended April 1, the company reported sales of $50 million and a loss of $40.7 million. The company has an accumulated deficit of $49.2 million and expects to incur losses at least into calendar 2001.
Palm and Handspring are two handheld personal device makers connected in so many ways they could almost be clones. Both Palm and Handspring are champions of the Palm operating system. Handspring's founders were the brains behind Palm.
And Handspring's IPO may also have a tough time following an initial Wall Street honeymoon.
Aside from a volatile stock market, Handspring may have had to lower its asking price because investors couldn't find much differentiation from Palm. One could argue that Handspring, whose Visor gadgets run on the Palm operating system, is a less developed version of Palm.
The much-ballyhooed Palm IPO has left some investors with an unpleasant aftertaste. Palm rocketed to $165 on its first day of trading, but now hovers around $28 or so. The stock chart looks like a vicious downhill ski slope.
There was some arbitrage going with Palm shares as 3Com (Nasdaq: COMS) released details of its Palm share distribution July 27, but Palm's outlook wasn't so hot.
Palm reported a pro forma profit of $15.5 million on sales of $272.3 million in its third fiscal quarter. The results sounded great until the Palm conference call. Execs predicted slowing growth, component shortages, falling margins and operating losses as it fends off competition.
Palm OS dependent
One key item to watch in the future is Palm's plan's for its operating system, which is licensed by Handspring. Palm is hoping to become more than just a hardware company, and plans to boost revenue and margins by licensing its operating system (OS).
Handspring has licensed the Palm OS until September 2003 with a pact that can be renewed on successive one-year terms. However, Handspring won't get Palm upgrades easily after 2003. "It is possible that Palm will choose not to renew the license at the end of its term for competitive or other reasons," the company said.
Since Handspring licenses the Palm OS, it won't be able to develop an OS licensing revenue stream like Palm.
Handspring is looking to distinguish itself with its Springboard modules, which are add-in products that can turn its Visor into a cell phone or MP3 player.
However, the modules are behind schedule and there are only a limited number for sale.
The Springboard modules delay isn't a minor issue. Handspring said the modules are the key to developing alternative revenue streams. The company intends to license its technology and eventually develop wireless services.
In regulatory filings, Handspring acknowledges pricing pressure, component shortages and other hardware problems as risks.
Handspring is also becoming increasingly dependent on the retail sales channel, which will hurt margins. Handspring, which released its first product in October 1999, had brisk Web sales when its product launched, but the site crumbled under the pressure. Handspring said the problems are resolved, but in April expanded its sales distribution to include Best Buy (NYSE: BBY), CompUSA and Staples (Nasdaq: SPLS) . It also expanded in Europe and Japan.
"As revenues through our retail distribution channel increase as a percentage of total revenues, we expect our gross margins will decrease as sales through retailers are made at lower margins than sales through our Web site," the company said.
Handspring also faces the same competitors as Palm. Handspring cited licensees of the Microsoft Windows CE operating system, including Casio, Compaq (NYSE: CPQ) and Hewlett-Packard (NYSE: HWP); members of the Symbian consortium, including Psion, Ericsson (Nasdaq: ERICY) and Motorola (NYSE: MOT); and other Palm licensees, including Nokia (NYSE: NOK), Sony (NYSE: SNE) and Qualcomm (Nasdaq: QCOM), as competition.