It would have been
unthinkable a few months ago, but interest in the initial public offering of upstart handheld-device maker
is looking decidedly cool.
The offering, to be underwritten by
Credit Suisse First Boston
Donaldson Lufkin & Jenrette
U.S. Bancorp Piper Jaffray
, is beset by worries about the Mountain View, Calif.-based company's ability to compete in an extremely crowded (but not overly lucrative) space.
"I'm hearing absolutely no excitement whatsoever," says one money manager who requested anonymity. And evidently, Handspring hasn't been hearing much, either. Last week, the company lowered the expected price range on its 10 million-share IPO to $17-to-$19, from $19-to-$22.
There's room to go lower still: The midpoint of the new range values Handspring at $2.25 billion, a hefty sum for a company with no fiscal 1999 sales and whose prospectus comes chockfull of newly unfashionable boilerplate references to continuing losses and a tenuous path to profitability. Benchmark comparisons, meanwhile, aren't favorable.
has lost more than 70% of its value since its first day of trading. And unlike Handspring, Palm is an industry leader, is profitable and, perhaps most importantly, controls the licensing rights to the fast-growing handheld market's dominant operating system.
For now, Handspring has mystique and promising technology on its side. The company is led by a couple of Palm originals, Donna Dubinsky and Jeffrey Hawkins, who ditched Palm to found Handspring after developing the original Palm Pilot. Handspring's Visor handheld device has garnered very strong reviews. The deluxe model is both cheap and powerful, costing $249 and loaded with eight megabytes of RAM. And the company hopes to differentiate the product by its Springboard expansion slot, for which users can purchase plug-in modules such as wireless modems, MP3 players and global positioning systems.
In the absence of licensing revenue, Handspring will rely on modules to augment its sales. But it has been very slow to bring them to market -- only a
smattering has been released yet.
"I would have hoped they would have taken care of that before they hit retail," says Jimmy Johnson, analyst at
. "But I'm sure they'll take
market share. They're coming off a zero base and have a nice product." Figures from
International Data Corp.
show Handspring with a 1.4% share of the PDA market in 1999, well behind Palm's 66% share, but impressive considering the company had a product on the market for only two months that year.
"Later on, they'll level off and go head-to-head against Palm," says Johnson. "And Palm isn't sitting on its laurels, waiting to be one-upped."
Certainly not. Palm already has moved to take away one of the Visor's biggest selling points, its unmatched affordability. The company recently slashed the prices on its comparable Palm IIIe and Palm IIIxe models to $149 and $249, respectively, matching prices of Handspring's entry level and deluxe models.
"It reminds me of the airlines," says Jill House, senior analyst at IDC. "Small carriers came in with the notion that they would win on price. But the big carriers always win on price. Playing on margins is dangerous."
Handspring also could face near-term difficulties competing for components with its much larger competitors. Shortages of LCD screens and flash memory already have prompted Palm to concede that it is having problems meeting demand for its products.
Hold My Hand
But it's not just Palm that Handspring must contend with. Anticipating the migration of consumer hardware away from the desktop and toward appliances, PC makers such as
already have introduced handheld products using
operating system, and
plans to release a PDA of its own later this year.
Meanwhile, mobile-phone companies such as
are developing products of their own.
That sort of crowding doesn't leave much elbow room for the little guy. "A person is only going to have one type of handheld device, whether it's a cell phone with a screen and Internet access, or a Palm, or something else that hasn't been developed yet," says Fred Hickey, editor of the
High Tech Strategist
newsletter. "And everybody's going to build these handsets. I've never seen a bigger group of companies chasing one market, and it's going to be a small commodity market. That's a recipe for disaster." Hickey has never had a position in Palm and doesn't plan to take one in Handspring.
Obstacles notwithstanding, Handspring's IPO remains on track. The stock, which will trade under the
symbol HAND, is scheduled to be priced on June 19, according to the syndicate desk of CSFB.