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Palm looks to raise $368 million in IPO

The device maker is looking to raise upward of $368 million in its initial public offering, based on the high end of its $14 to $16 price range and 23 million shares it plans to float.

Palm plans to play a big hand in its IPO.

The device maker is looking to raise upwards of $368 million in its initial public offering, based on the high-end of its $14 to $16 price range and 23 million shares it plans to float out, according to its filing today with the Securities and Exchange Commission.

One highlight from the filing: When Palm spins off from 3Com, it will hold an initial market value nearly two-thirds the size of the networking company.

The staggering numbers reflect Palm's growing prominence in the device market, as well as the increasing industry-wide focus on gadgets and devices, while high-end desktop PCs fade from view. Palm has logically embraced the recent trend of looking to single- or limited-use devices to access the Internet and perform many functions that a few years ago could only be performed by expensive, full-featured PCs.

Palm has been on a roll of late, signing up high-profile licensees like Nokia and Sony and topping recent end-of-year market share surveys. But the challenges facing the company are growing in proportion to the larger role it's trying to play in the future of computing, analysts say.

Rather than just a maker of personal information aids, Palm sees itself as the leader of troops of developers and partners working in concert to create an army of users accessing Internet-based services and communicating wirelessly all on devices running on the Palm operating system.

This so-called Palm Economy, as 3Com executives like to call it, is the company's attempt to place itself squarely in the middle of the trend toward an emphasis on limited-use connected devices, Internet appliances and smart cell phones, rather than on full-featured desktop computers.

Based on its 570 million shares outstanding and the high end of its pricing range, Palm will have a market capitalization of $9.1 billion when it goes public. That's good news to 3Com, which will hold a 93.3 percent stake in the spinoff. 3Com has a market cap of approximately $15.9 billion.

Other players that stand to benefit from the IPO are America Online and Nokia, which will both hold a 5.3 million stake, and Motorola, which will own 4.3 million shares. Each of these companies has struck alliances with Palm to create services and devices that run on the company's operating system.

During the six-month period ending Nov. 26, Palm generated $435 million in revenues, compared with $263 million a year ago. And it posted a profit of $22.5 million in the period, up from $16.2 million a year earlier.

The company plans to trade under the ticker "PALM."

3Com struggles amid industry boom (news analysis) The company has recently been working to de-emphasize its hardware business and promote its Internet services and platform licensing groups. But it will likely be slow going. According to recent market share surveys, Palm-branded devices make up around three-quarters of the handheld market, and the company itself said in the filing that the vast majority of its revenues come from its hardware business.

Palm's attempt to exploit the industry trend, although certainly timely, also raises questions about whether the company infrastructure, which has undergone numerous management and organizational changes, or its technology, which some say is ill-equipped to support an entire industry-wide shift, will succeed as an independent entity.

Palm is led by Carl Yankowski, a former Sony and Reebok executive, but before his appointment earlier this year, the company went through at least three chief executives in as many years.

Meanwhile, sources say Palm is set to release its first device with a color display, the Palm IIIc, on Feb. 20. Although the move has been long-anticipated by the handheld community, it is unclear whether the Palm operating system, which has been hyped by the company for its narrow focus, is sufficiently scaleable to handle battery-draining multimedia applications.

Along the same lines, the company's high-profile licensees, which include Nokia, Sony and Handspring, are all expected to enhance Palm's multimedia and wireless Internet capabilities. Nokia's partnership will result in some type of hybrid cell phone with PDA functionality, and Sony is expected to introduce a device or phone with wireless Internet access and a color display. At the same time, Apple and Palm are rumored to be close to announcing a joint product.

Although these devices are sure to give the company visibility and buzz, the Palm operating system may not be able to live up to the hype. The "Zen of Palm," which is what the company calls its design philosophy, emphasizes simplicity and ease of use over fancy features and bells and whistles, which would seem to run smack into the new focus on expandability. This philosophical conflict could result in stunted sales and problems with strategic partnerships, analysts warn.