Confirming weeks of speculation, 3Com Corp. announced it plans to spin off its Palm Computing subsidiary into an independent public company by next year.
The restructuring will allow 3Com to focus more on its networking connectivity and infrastructure interests, the company said. It expects to make an initial public offering early next year. 3Com will own about 80 percent of Palm after the IPO, but will spin off the remainder of the unit during the following two quarters.
3Com directors James Barksdale and Gordon Campbell will move to Palm’s board of directors. Other board and executive management decisions will be announced before the IPO registration.
About 700 employees will move under the umbrella of the new company after the spinoff.
Eric Benhamou, 3Com chairman and chief executive officer, said the move will allow both units to concentrate more on their respective businesses-Palm on its operating systems and software licensing, and 3Com on its Network Systems and Personal Connectivity network equipment business.
3Com stock had been on the rise for weeks in anticipation of the move. The company’s stock was trading at around $24 when it jumped to $27 on rumors of either a sale or spinoff. The company’s stock closed at $28.87 after the official announcement of the spinoff was made. This still is a far cry from the $75 prices the company enjoyed two years ago.
Securities analyst firm J.P. Morgan lowered its rating on 3Com to “market performer,” from “buy,” following the announcement. Although it called the move a positive one, J.P. Morgan analysts said the remaining Network Systems and Personal Connectivity business “will lack any significant growth drivers for the foreseeable future … We believe the move … takes a lot of potential upside out of 3Com’s stock.”
The Palm Computing division had $570 million in sales fiscal 1999 and accounted for about 10 percent of 3Com’s total revenues. About 5 million devices use the Palm OS, including the most recent, wirelessly enabled organizer the Palm VII.
As a reason for the spinoff, Benhamou said he believed Palm’s revenues have reached their peak. Revenues have almost doubled every year for several years.
Although the Palm platform holds 68 percent of the handheld market share, Palm can expect competition to heat up significantly in coming years from both Windows CE based handheld computers as well as the emerging wireless smart-phone market.
Handspring computer
Two founders of Palm Computing-who left the company after 3Com refused to spin it off two years ago-announced the introduction of their new company’s competing handheld device the day after 3Com announced the Palm move.
Handspring Inc., as the company is called, revealed the Visor handheld computer, its first product. Key to Visor is an expansion slot based on the company’s Springboard platform. The slot allows plug-in expansion modules for MP3 audio players, digital camera functionality as well as wireless applications like paging and wireless modems for Internet access.
“Everywhere I turn, people want to do more with their Palm computers,” said Hawkins, the company’s chairman and chief product officer. “They want to have more software, add a GPS, take digital pictures and especially add wireless communications. There was no easy way to do this with existing handhelds, so we created the Springboard expansion platform.”
With it, he said developers can create hundreds of integrated expansion options.
Glenayre Technologies Inc.’s Wireless Access Group, J.P. Systems and AvantGo will provide wireless connectivity for the device.
Handspring is accepting orders today, but does not expect to begin shipping Visor devices until October. Three models will be available-Visor, Visor Solo and Visor Deluxe. The company set a $150 price tag on the Visor solo device, $180 for the Visor and $250 for the Visor Deluxe.
Reuters news service contributed to this report.
