March 31, 2000 10:30 AM PST

Handspring files to go public

Handheld computer maker Handspring today filed to go public with a $300 million stock offering, the latest sign that the market for handheld devices is heating up.

Handspring, which was launched in November 1998 by Palm Computing co-founders Donna Dubinsky and Jeff Hawkins, today filed with the Securities and Exchange Commission to sell its shares in an initial public offering. The IPO follows Palm's spinoff from parent company 3Com and its public offering.

Handspring launched its product, Visor, last October. The device is based on the Palm operating system and resembles a Palm device--except for the addition of the Springboard expansion slot. The Springboard cartridges are designed to easily allow upgrades, with add-on modem, digital camera and MP3 player cards in the works.

Despite the tough competition from Palm, analysts expressed cautious optimism about the company's chances for IPO success. Although Handspring enjoys a strong management team in Dubinsky, Hawkins and former Palm marketing director Ed Colligan, the IPO market is somewhat rocky. The company must prove to investors that its has its e-commerce problems under control, according to Jeff Hirschkorn of IPO.com.

"It's a dismal time in the IPO market," Hirschkorn said, predicting nonetheless that Handspring will enjoy more long-term success than Palm, which went public last month. "It's a more pure company with no solid parent to tie it together. It's a good VC deal, with good backers, and it's a better long-term bet."

In addition to being constrained by a complex relationship with parent company 3Com, Palm is attempting a complicated transition from hardware company to software licensee and wireless service provider. Handspring's strategy, although not without risks of its own, may be easier for investors to understand.

"Visor is an attractive product, and the deal will be well-received," said Richard Peterson, an IPO analyst with Securities Data Corp., explaining that as a hardware maker, Handspring may be more appealing to investors fed up with the volatility of e-commerce and Internet stocks. "You have a tangible product, an actual tangible item they can sell."

But the company depends on Palm--also its chief competitor in the hardware market-for its operating system. The licensing agreement expires in 2003, according to the filing, with the option to renew the license at that time.

Like Palm, which credits much of its success to the loyalty of its third-party developer community, Handspring is hoping to entice a corps of software and hardware developers to create applications and add-on peripherals for the slot. To date, only three Springboard cartridges are available from Handspring, with more expected in the next few months.

Widespread availability of more Springboard cards is integral to Handspring's future, analysts say, because the device itself offers no other discernible benefits over a Palm-branded device in terms of price or features. In addition, because the Visor does not use flash memory, the devices cannot be easily upgraded to future versions of the Palm operating system.

Further, the company is still working to mend relationships with existing customers who suffered shipping delays and backorders following the launch of the Visor. Handspring was overwhelmed by demand for the Visor in its first days on the market, and its strategy to sell the product only through its own Web site backfired because of the delays and customer service problems. The company and analysts say that Handspring has largely sorted out its online sales problems, but some customers may be wary.

Another step that takes pressure off the company's direct sales approach is its move into retail stores next week. The Visor will be available at CompUSA and Best Buy, a move many analysts say will help boost the company's visibility and sales. However, the Visor will now be competing head-to-head with Palm, which has dominated the handheld hardware market, for shelf space.

The IPO will be underwritten by Credit Suisse First Boston, Merrill Lynch, Donaldson Lufkin & Jenrette, and U.S. Bancorp Piper Jaffray, according to the filing.

 

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