3Com Corp has finally taken heed of the noise in the market and announced that it will spin off its Palm Computing unit early next year. The company hopes that the move will increase Palm’s market share by vastly increasing the licensing of the mobile operating system. However, the move may also increase the speculation that surrounds the future of 3Com’s networking business.
According to Janice Roberts, senior vice president of business development at 3Com, the spin-off will enable Palm to concentrate on new market opportunities. Roberts says that Palm will focus on extending licensing, wireless and wireline services and increasing Palm’s visibility in the enterprise. We make a small percentage of our revenues from licensing now, Roberts said, we’re looking at extending that.
Despite competition from Windows CE-based and other handhelds, Roberts professed confidence that Palm could maintain its dominance in the handheld sector. So far, the unit has sold five million Palm units. The Palm business accounted for $570m in sales in fiscal 1999, or about 10% of 3Com’s sales. Its revenues have more than doubled annually. However, it faces increased rivalry from CE and new companies like Handspring Inc which will undercut the Palmpilot on price yet support the Palm OS (see separate story).
The spin-off will be a two-stage process: 20% of the unit is expected to float within four months, with the remaining portion of stock will be distributed to 3Com shareholders next summer. Asked why it had taken 3Com so long to float the unit, Roberts said that the company had spent a long time looking at the options and that the time was now right. The company is not announcing any management changes at this time, she said.
The networking division has been the subject of many takeover rumors in recent months. Siemens, Nortel Networks and Lucent Technologies Inc have all been named as possible suitors. Roberts said that the spin-off would not affect 3Com’s networking business and dismissed the take-over talk as rumor. However, Merrill Lynch suggests that the move will unmask the low valuation that 3Com trades at. The networking unit says it will concentrate on enterprise and carrier class hardware and on beefing up its e-business offerings, and 3Com CEO Eric Benhamou recently suggested that the company might change its name to 3.Com although Roberts denied that any name changes were in the pipeline.
