Call it the new era of good feelings for the companies that make PDAs, or personal digital assistants.
The shares of the three best-known PDA makers ended the week on a very high note.
Research in Motion
were all trading up Friday, riding a wave of announcements, good news and high expectations.
Palm, the brand leader, was up more than 13%, closing at $66.91, its highest price since early March. Handspring, which rose more than 10% Thursday after a reiterated buy rating from
Credit Suisse First Boston
, closed up more than 3% to $87.61, and Research in Motion was up more than 2% at $109.25 Friday trading.
Palm is driving some of the recent market action with news and announcements -- such as its inclusion on the
Monday in place of
. Much of the activity could come from money managers whose funds use the Nasdaq 100 as an index buying into the stock.
There also has been a sea change in investor opinion in the last two months, supported in analysts' research notes this week -- not to mention a favorable
Wall Street Journal
review Thursday -- leading to greater interest in the PDA companies. There is also considerable skepticism about the valuation of the stocks -- they are trading at very high multiples.
Convergence with wireless communications has been the overriding theme in the PDA market. That led to the expectation that these consumer upstarts would have their lunch handed to them by the cell phone giants. Now it looks like the PDA companies are in the front of the convergence race.
Palm, which owns the brand in the U.S., has a joint effort with
for software that will get Palm users behind the corporate firewall and into intranets and email. And Palm has signed an agreement that will turn Palm Pilots into electronic credit cards by giving users the ability to beam financial information to special terminals.
Palm, which expects to sell 2 million units this holiday season -- up from 700,000 last year -- also announced a $100 million marketing program.
Handspring is introducing a color PDA and the VisorPhone (a phone attachment for the PDA) in time for Christmas. Already favorably reviewed, it's the kind of product that typifies convergence.
"These types of PDAs are more likely to be the single appliance you or I would carry," said Vik Mehta, analyst with
(his firm has done underwriting for Palm and Handspring).
"You've got a lot of players here as the convergence continues. It's not a foregone conclusion that big cell phone companies will dominate. They (Palm, Handspring and RIM) will be players in the handheld wireless markets," said Thomas Sepenzis at
CIBC World Markets
(the firm has done underwriting for RIM).
And as they compete, Mehta said, look for increased interest in mergers and acquisitions by the big players.
Still, many investors point to the high multiples of the three companies and shake their heads. Palm is trading at about 15 times 2001 revenue. Handspring and RIM trade at more than double 2001 revenues, and investors are looking at a combintation of models to find accurate valuations for the stocks, Mehta said.
True, the multiples are high, said Sepenzis, but so are the growth rates of 100% to 300%.
3:21 p.m.: Kulicke & Soffa Crunching Chips
Semiconductor equipment maker
Kulicke & Soffa
fell sharply Friday, after warning that revenues for the current quarter would be significantly down.
Shares of the "back-end" equipment manufacturer were down 22.3% after announcing it expects revenue for the first quarter ending Dec. 31 of $140 million to $165 million, compared with $179.8 million in the same period last year. The revenues were also down noticeably from Street estimates of $240 million and up.
Philadelphia Stock Exchange Semiconductor Index
, which tracks the chip sector, was up 0.9%. But the significantly lower estimates for Kulicke were also hitting the shares of "front-end" equipment manufacturers, lending credence to a belief there is a slowdown in semiconductor demand for coming quarters. Front-end refers to the initial manufacturing process, while back-end refers to modifications to chips that have already been manufactured.
Still, worldwide semiconductor sales are expected to grow a strong 37% this year to $205 billion, the
Semiconductor Industry Association
, a trade group, said earlier this week.
separate story on the report.
were all down in trading Friday. Applied Materials and KLA-Tencor were each down more than 4%, while Novellus was down more than 6%.
"I think you're seeing the concern spreading,"
Morgan Stanley Dean Witter
analyst Steven C. Pelayo said of the front-end manufacturers' share drop. (Morgan Stanley has done underwriting for Applied Materials and for Kulicke and Soffa). "People are paying a little more attention, it's spreading to the front end. The front end hasn't felt it yet, but we're expecting it to."
In a report issued Wednesday, Pelayo and other MSDW analysts cut in half their estimates of semiconductor capital spending in the coming year.