BBC News | BUSINESS | Palm off to $53bn debut

BBC News Online: Business

Friday, 3 March, 2000, 07:15 GMT

Palm off to $53bn debut

Confidence that the wireless internet is the growth area of the future helped Palm's shares treble in their first day's trading to give the firm a value of $53.4bn.

Just 4% of the handheld device maker, well known for its electronic organisers, was sold off by 3Com.

Palm has 75% of the market in handheld electronic organisers, and more than 90% of the handheld organisers sold in the United States in the fourth quarter of 1999 use the Palm operating system.

Unlike many other technology and internet related Initial Public Offerings (floats) Palm is already making profits.

But investors believe it will be in the forefront of the next wave of handheld devices, able to provide PC-and-better quality internet access on the move.

3Com is initially retaining 94.8% of Palm, with plans to spin it off to shareholders later this year.

The share price of 3Com, the No. 2 maker of computer networking equipment behind Cisco Systems, has more than doubled in the past month.

Beats Sears, Roebuck & Co

The Palm IPO is intended to help fund its new strategy of licensing its operating system and letting other manufacturers build the devices.

The stock soared from its IPO price of $38 to open at $150 and trade as high as $165 on the Nasdaq market. The stock ended up $57. 1 at $95.1.

The Palm shares had been expected to be priced between $30 to $32 - itself up on intial expectations that the stock would be priced at $14 to $16 a share.

Since the Palm handheld devices were introduced in 1995, 5.5 million of them have been sold.

At the stock's closing price, Palm had a market capitalisation larger than that of its parent company, 3Com, and five times that of Sears, Roebuck and Co, the second largest retailer in the US.

The frenzied Wall Street debut renewed concerns that investors may be bidding up technology stocks far too high.

Psion, Microsoft and mobiles

Robert Burgoyne, technology strategist at the Monument Funds Group, thought the post-IPO trading was a mania but he said the outlook for Palm's technology was very bright.

Along with the public stock offering, Palm said it would sell shares to America Online, Motorola and Nokia.

Before Palm even began trading, ABN AMRO rated the stock a "buy" and set a 12-month price target of $90.

"We believe Palm could become a $50 billion company in six months," said Jonathan Ross, an ABN AMRO analyst. "This represents 42 times calendar year 2000 revenues."

The battle for dominance of the wireless internet - expected in a few years to surpass the use of PCs to get online - has also helped Palm's big rival, UK firm Psion to increase in value more than ten fold in the past year. Even after that rise its Ł5.6bn ($8.8bn) market value is considerably short of Palm's.

Analysts expressed concern that the Palm operating system may be past its best days. Its operating system is 16-bit while rivals such as Psion use 32-bit, which can process more information faster.

Other competitors on the horizon include Microsoft, which is aiming to spread the use of its Windows CE operating system for handheld devices.

Palm will also face stiffening competition from makers of next-generation mobile phones which could perform many of the same functions as a Palm

Related to this story:
Psion and Palm establish links (14 Oct 99 | The Company File)
Psion opts for mobile web (02 Mar 00 | Business)
Ericsson and Microsoft hook up (08 Dec 99 | Business)

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