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3Com files to spin off Palm Computing in IPO

By Stephanie Miles, CNET News.com, CNET on December 14, 1999

Summary

3Com took 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.

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3Com took 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 Computing was acquired by 3Com in June of 1997 as part of its acquisition of Palm's then parent company US Robotics. Palm will attempt to raise US$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.

The company makes a popular line of handheld computers that compete with products, featuring Microsoft software, from Casio, Hewlett-Packard and Compaq, as well as Palm licensees Handspring and TRG. Handspring is slated to go public early next year as well, in another highly anticipated IPO.

Once designed for the sole purpose of organizing personal and business information and contacts, the 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 of information, 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, 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 US$225 million.

The company has shipped 5 million PDAs to date, according to the SEC filing, with revenues growing from US$1 million in 1995 to US$563.5 million last year. Palm reported operating losses from 1992 until 1998, when it reported net earnings of US$4.1 million. The company reported earnings of US$29.6 million last year.

But the company is hardly fully diversified: Palm admits that 99 percent of its revenues came from selling the Palm devices for the quarter ending Aug. 27. In addition, distributor Ingram Micro made up 35 percent of Palm's revenues for that quarter and 24 percent of all revenues in 1999.

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. The 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.

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