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3Com to spin off PalmPilot
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September 13, 1999: 11:05 a.m. ET
IPO planned for next year, giving shareholders stock in both companies
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NEW YORK (CNNfn) - 3Com Corp., the No. 2 maker of computer network equipment, said Monday it plans to spin off its popular PalmPilot hand-held computer business early next year.
"Creating the industry's first independent, publicly-traded hand-held computing company is a significant milestone, reflecting both the current success and the future potential of our Palm business," 3Com CEO Eric Benhamou said in announcing the plan.
The company said it will file an initial public offering registration with the Securities and Exchange Commission for about 20 percent of its Palm Computing subsidiary and will spin off the shares of the new company to 3Com shareholders. The 3Com investors then will hold stock in both companies.
Afterward, 3Com plans to spin off the balance of Palm Computing to its shareholders two quarters later in order to focus on its core networking systems and connections business.
3Com's Palm business had sales in the fiscal year ended May 31 of $570 million, about 10 percent of the company's total revenue. The company said it holds 68 percent of the hand-held computer market worldwide, with more than 5 million customers using Palm devices.
3Com's activity over the last 12 months
The company said a spin-off will allow both Palm, with 600 to 700 employees, and 3Com's far-larger network equipment business to focus independently on growth opportunities in the most promising markets.
In Palm's case, this includes licensing the software that runs the handheld computers used by 5 million customers of Palm-branded devices.
Manufacturing partners such as IBM Corp. (IBM) and Qualcomm Inc. (QCOM) have used Palm software to create handheld devices for dedicated purposes such as checking stock quotes or for inventory tracking.
"It is about creating a new industry with challenges and rewards not unlike those that lay ahead some 20 years ago at the dawn on the personal computing industry," Benhamou said in a conference call with financial analysts following the announcement.
Benhamou said that Palm's revenue had reached "critical mass," allowing the company to make the move to spin it off. Palm revenue has more than doubled annually for several years running.
Palm faces competition from handheld computers based on Microsoft Corp. (MSFT) Windows CE operating system and, to a lesser extent, from Britain's Psion Plc. A new generation of wireless phones also is beginning to offer features similar to what Palm does as the market for mobile data devices explodes.
Shares of 3Com (COMS) rose 5/16 to 27-9/16 Monday. 
--from staff and wire reports.
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