The transcript is unedited and phonetic spellings are indicated with a (ph). Wall Street Review recently interviewed Adam Lashinsky. Wall Street Review can be heard Monday though Friday on KSDO.com and on KSDO AM 1130 in San Diego from 6 to 7 p.m. ET. Adam Lashinsky, who writes SiliconStreet.com spoke with Wall Street Review on Feb. 14 2000.

Mike Green:

All right, welcome back everybody. It is a Monday edition of Wall Street Review and we are talking high-tech stocks and here, to lead that discussion, is none other than Adam Lashinsky, Silicon Valley columnist for

TheStreet.com

. Adam, how are you doing today?

Adam Lashinsky:

Well, how about yourselves?

MG:

Pretty good. Good to have you back on.

AL:

Thank you.

JB:

You did a great piece, I should point out, people can read it on

TheStreet.com

, I'm not sure if this is free yet, but one of the things you mentioned is the limited float that less than 20% of this Palm offering is actually going to be able to be bought by the public...

AL:

Yeah, let me interrupt, it's actually a lot less than that. The company has been saying that they would do an offering of less than 20% of Palm. When you dig into the numbers you find out they're actually selling more like 7%, and because about 3% of that is going to three big shareholders,

America Online

(AOL)

,

Nokia

(NOK) - Get Report

and

Motorola

(MOT)

, the public really is only getting a shot at a little over 4% of Palm. So the float initially is going to be extremely thin. There won't be nearly enough shares as people who will probably want to buy them. And as we've seen over the last couple of years a thin flow and scarcity of supply tends to drive up the price of a new tech IPO.

JB:

So they're going to price this thing $14 to $16 bucks?

AL:

That's the current range, and typically the investment bankers won't change the range until the day before they price it.

JB:

So, I mean, you're on record in saying this'll probably be the hottest IPO this year. Is that true, or am I misquoting you?

AL:

No, I think I did say that in a beginning of the year prediction. I highly doubt it'll be the biggest one-day gain because it's too big. It's going to be a multibillion dollar, or it could be a billion dollar offering -- sorry half a billion dollars -- but the point is, is that because it's so large there will be an opportunity for institutions to get involved and buy significant of dollar amounts of this offering. I think that's what'll make it so big.

JB:

Now what about the competition? I guess it's limited at this point -- Windows CE doesn't have the exposure or the reach that Palm has. Also I know Handspring had some problems, although I guess they're bouncing back a little bit. But hasn't Palm licensed this operating system to the likes of

Sony

(SNE) - Get Report

and some of the others?

AL:

That's right, Windows CE is an operating system that

Microsoft

(MSFT) - Get Report

was pushing that was competing with the Palm operating system, it really hasn't flown despite

Casio

(CSIOY)

and

Hewlett-Packard

(HWP)

making toys that use the Windows CE. When Sony comes out with its Palm device, that's going to bring in more revenue for Palm because it will get a licensing fee for the software. You can expect to similar devices from Motorola and Nokia.

IBM

(IBM) - Get Report

is also going to be licensing the Palm OS and we haven't gotten a glimpse yet of what AOL intends to do but that has more potential for Palm.

JB:

Yeah it sounds like that's where we can see some huge profitability on the licensing more so than the actual building of these things.

AL:

Yeah, Palm already is profitable, and has good, very respectable gross margins on the hardware it's making, but when a company licenses software, that's what you really get beyond the cost of development: There is virtually no cost to selling to another license on a software to another company like Sony, so that is very high gross-margin business once you get into it.

MG:

So when's the expected date here, we're still a couple of weeks off?

AL:

Feb. 28th is what I've heard, yeah.

MG:

Feb. 28th. And what are some of the money managers saying -- Tim Morris is on record of saying that he thinks it could go for $70 to $100 first day of trading? That's pretty tough to say.

AL:

Yeah, Tim is just making that up and he's entitled and he may even be right. It's just very hard to gauge. I think the thin float will drive this. Now what I've written in my column is that what they've already done, what

3Com

(COMS)

and its underwriters Goldman Sachs and Morgan Stanley already have done is slapping a wireless company multiple on Palm. Now the reason that's interesting is that it's really not much of a wireless company. The palm VII is a wireless product but

wireless accounts for a negligible amount of current revenues, so already they're valuing this very, very richly and what he's betting is that it will get valued by the public markets at four to five times that. I'm not going out on that limb by any means, I'm merely saying it undoubtedly will go above where they got it priced at right now.

JB:

Now what about...the two questions we get often on this show are related to 3Com stock, first of all and this was a subject of -- and I'm sorry to say I missed the show this weekend, I saw it for the first time two weeks ago...it was awesome. You guys do a great job on "TheStreet.com" TV show. You got to get that

Fox Network

out to more households. But this

New York Times

piece I did see yesterday, which all but screamed to call your broker on Monday morning and buy 3Com. Tell us if that makes sense in your thinking, and also what is your best guess on when 3Com shareholders will actually get those Palm shares in their hot little hands.

AL:

Yeah I want to say I winced at that line in the

New York Times

, where it talked about calling your broker to get a piece of that, it just sort of makes me feel uncomfortable to see that sort of stuff in the media.

JB:

It was a one-sided story.

AL:

It's bad enough when brokers do that but for the media to encourage it is another thing. All 3Com has said and all they have to say is that they're going to make this distribution within six months of the IPO and I personally don't think there's anyway to gain that. In other words, they'll do it when it suits their purposes when they feel like the moment is right; there's tax consequences that they haven't worked out yet, so there's a lot of moving parts there. They say you have to be a 3Com shareholder of record to get the Palm shares but they haven't said when and they'll probably make that clear as time goes on too. Now what I said on the show over the weekend is that currently Palm is being priced at $14 to $16 a share, I think for every $10 that the Palm price goes up, add $16 to 3Com's share price. From now that's how it's been tracking, you'll be able, as they get closer to the IPO and as they get a new price on that and then as it trades in the open market you'll be able to see if it continues to track that way. Let me just say, as you know for a dud company like 3Com, $16 is saying a lot.

MG:

TheStreet Recommends

And what is your take on 3Com? Here's a company of course that's up against, in the networking area all of the usual suspects and even

Intel

(INTC) - Get Report

has taken aim at these guys in the last couple of years and outside of this Palm deal this company has really struggled. What do you think of 3Com itself, outside of Palm?

AL:

I haven't paid careful, careful attention. The problem is certain parts of their business like the dial-up modem business that they bought from

US Robotics

that just aren't commodity products which was exactly what everyone said to them when they bought US Robotics. There are other parts of the business that are relatively healthy. They have very good relationships with very big customers so this is a company that has hung in there and certainly hasn't fallen apart by any means but they've also clearly lost out in the interim to

Cisco

(CSCO) - Get Report

. Getting Palm in the US Robotics transaction was clearly an unintentionally brilliant move that they made.

MG:

Adam, I'd like to talk to you about this company here which has made a name for itself as the ultimate in advertising models,

Buy.com

(BUYX)

. And the stock today took an important step toward selling at a hat price. What's going on here with Buy.com? What's behind this company and just give us your take on this gem.

AL:

I think what's going on with the stock price of Buy.com, really only a handful of trading days since its IPO is really very important and it's about more than Buy.com. You stop me when you get tired of hearing this because it needs a little explaining but Buy.com is the number two retailer on the Internet after

Amazon.com

(AMZN) - Get Report

, another famous money loser. And I think that Buy.com's timing simply was wrong. The time to do a consumer-oriented Internet company was two years ago and the market isn't patient anymore for this sort of thing. So people are saying, when is this market going to collapse and what occurred to me recently is that this market has collapsed only it's moved onto other things, like business-to-business. So everything is honky-dory in the tech stock market unless you happen to be in the wrong segment of the tech stock market.

JB:

It seems to pretty much be Amazon because

eTOYS

(ETYS)

and CDNow and a bunch of other former highfliers are obviously way off the highs. The thing that amazed me was I couldn't even understand how Buy.com did so well in that initial offering, that first day it doubled I think which surprised me; I thought it would be a lukewarm demand even on the offering day.

AL:

Well, a company that's as well known as it is probably has a handful of fans but also remember that the investment bankers have a good deal of control in terms of what happens immediately after the stock is first offered. So just by insuring that their institutional clients have an appetite for the stock, they can insure that at least the beginning will be good and that probably helped, undoubtedly, with Buy.com.

MG:

Yeah, if nothing else it was an opportunity here to flip the stock.

JB:

That was the flip of the century.

AL:

Yeah, it doubled on the opening and that was good for flippers. Now I wrote recently about an IPO that hasn't happened yet,

Varsitybooks.com

(VSTY)

and

webMethods

(WEBM)

, which is a B2B Internet software company, both in the DC area. I said one, webMethods was an example of a company that would be extremely hot and Varsity books was an example of really a company that might have been a great IPO in 1998. webMethods of course you know went off to the races, while Varsitybooks delayed their offering so they could lower the price of the offering and I believe they intend to start trading tomorrow.

JB:

They're an online bookseller just like

barnesandnoble.com

(BNBN)

another-

AL:

Correct, only focused on the college textbook market.

JB:

Now what about

Wal-Mart

(WMT) - Get Report

, do they have a shot in this space of creating some noise and maybe taking some share away from Amazon?

AL:

Yes, I think they do and I think Wal-Mart.com together with its partner in Palo Alto, Excel Partners, the venture firm is going to turn our slavish attention to internet time theory on its head. And what I mean by that is Wal-Mart already has botched the Internet. Now they're going to start over and I think that their strategy is to now enter the internet in an orderly fashion, at their speed, doing it right and since they all ready missed the first chapter it really doesn't matter now when exactly they get it up. What matters is if they do it correctly -- I think they can leverage their stores -- and if they can be intelligent about co-branding their advertising, they'll do just fine. The column that I wrote last week suggests that they've thought through some of these issues well although, obviously we'll just have to wait and see how they implement them if they should be believed. My gut tells me I do believe them.

MG:

What's going to take them so long here?

AL:

Well, they like many companies were trying to do this themselves the first time around. These guys are fabulous merchants, they understand finance very well. They even were early in technology when Sam Walton insisted on putting a satellite system in each store so they could communicate well with each other. But they didn't know diddly about the Internet and I think that's what's taken them so much time.

MG:

All right Alan, unfortunately we are out of time.

AL:

Alan?

MG:

Adam did I say Alan?

AL:

My grandfather used to call me that.

MG:

Sorry about that. Thought I said Adam. I'm getting old. Adam, thanks so much for talking with us and we'll talk again soon.

JB:

Yeah, you got plans for your night, Valentine's day?

AL:

I know where you're going with that, I have to go and make my deadline.

JB:

One of the ten most eligible bachelors in the Silicon Valley. They're pounding the door down. The office is full of candy and flowers and stuff.

MG:

I didn't call him Alan, did I?

JB:

You did call him Alan.

MG:

Adam Lashinsky, ladies and gentleman, Silicon Valley columnist for

TheStreet.com

,

Fortune

columnist, Street.com TV show, and eligible bachelor. He does it all.