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By Brad Stone
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One of the problems with corporate existence in high tech is that things move too fast. A company can be applauded one day and jeered at the next. So it was last week for 3Com--the behemoth at the center of the handheld computing business. CEO Eric Benhamou announced he was spinning out his wildly successful Palm Computing division as a separate company, to be headed up by 3Com's Alan Kessler. Palm is the maker of the Palm Pilot line of handheld computers, which have become de rigueur for business types. After selling 5 million of them, Benhamou said, the time was right to give Palm its independence--and, wouldn't you know, its very own IPO. What wasn't there to like about the corporate realignment?
True enough, most technology investors applauded Benhamou's move and presumably can't wait for Palm's stock offering, planned for early next year. Moreover, separating out Palm makes strategic sense: 3Com manufactures components for computer networks and that business has little to do with the mass-market consumer world of handheld machines. But industry insiders say that Palm has paid a price for remaining a part of 3Com for so long. Palm is the Sasquatch of handheld computers, but it could lose that dominance to a new rival, Handspring Inc., which plans to sell a similar device, dubbed Visor, at a lower price. No company can block competitors, but 3Com's refusal to spin off Palm sooner in effect created the rival. Handspring was founded last year by the very creators of the Palm Pilot who quit 3Com after it wouldn't give them their own corporate identity. "They should have listened to their executives and spun the company out when they wanted," says Giga Information Analyst Rob Enderle. "The fact that they didn't did a tremendous amount of damage."
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The defection of the highly regarded Palm founders, Donna Dubinsky and Jeff Hawkins, was by far the worst of the damage. Palm Computing became a part of 3Com in 1997, as part of 3Com's purchase of U.S. Robotics. Dubinsky and Hawkins wanted to sell inexpensive units and plunge the profits back into the division. But Benhamou needed those dollars to balance out the stagnant parts of 3Com's business. The Palm founders repeatedly asked for their corporate freedom and left with dozens of other employees to start Handspring when the answer seemed a definitive "no." Back at 3Com, which could offer no enticing stock-options bone, it took seven months to fill the top spot at Palm after Dubinsky left--and that per-son lasted only five months, fleeing for another start-up.
3Com veteran Kessler has now stepped in as Palm president. He says he will see the newly independent company through its search for a new CEO. He also disputes that the Palm spinoff was a defensive move, saying simply that the time was right. "It's clearly an enormous market and [a Palm IPO] can derive a lot of shareholder value." No doubt--the question, though, is whether Palm can continue to dominate the handheld market now that copycats are on the prowl.
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