FISTICUFFS - Palm Inc. vs. Handspring - Brief Article

STOCKS | In the PALM VS. HANDSPRING bout, who has the upper hand?

PALM AND Handspring, the two leading makers of hand-held personal data assistants (PDAs), are in the early rounds of a prizefight. For investors who want to bet on a winner, it's premature to declare a champ.

PDAs--which combine your Rolodex, calendar, notepad, and (if wireless-capable) e-mail and Web access all in One place--are becoming increasingly popular. IDC, a technology-consulting firm, expects sales to grow 31% annually through 2004, although some stock analysts think that estimate is criminally low. Palm made about 70% of the roughly six million PDAs in use today, while Handspring built most of the rest.

Palm, which was spun off by 3Com in March 2000, offers devices that range from $149 for the m 100 to $499 for the top-of-the-line Palm VII.

Nothing flatters like imitation, however. Handspring, which was formed in 1998 by the same trio that created Palm, tossed its entry into the ring in June 2000. The Handspring Visor looks uncannily like a Palm, but it differs in that it harbors a slot for plug-in accouterments, such as an MP3 player or digital camera. Palm won't have anything to match until later this year. Visors run from $149 to $449, and sales are growing faster than Palm's, though from a smaller base.

For investors, Palm packs a trick punch: It's profitable. Analysts expect Palm to earn 13 cents a share for the fiscal year ending May 31. But the stock currently sells for 400 times that amount, a nosebleed level given analysts' 35% annual earnings-growth forecast for the next three to five years. As for Handspring, don't look for it to enter the black until 2002.

Analysts go both ways. Lehman Brothers' Joseph To is a bull on the whole PDA business. He calls Palm "the emerging industry gorilla," and says that Handspring's Visorphone, which turns a Visor into a cell phone, could be the next "killer application." He rates both stocks a "buy." Far less enthusiastic is Mirva Anttila of Josephthal & Co., who has a "hold" (a weak rating) on Palm and doesn't cover Handspring. "We're still in the early stages of growth in the handheld market, and before demand stabilizes we'll experience plenty of short-term challenges," says Anttila.

Challenge one is the Luddite turn in the stock market. Palm and Handspring are down 68% and 37%, respectively, from their highs. Challenge two is the inevitable presence of richer and more powerful challengers. Sony and Compaq, among others, sell their own hand-held devices. Microsoft has a PDA operating system that rivals Palm's and threatens Palm's hopes to profit by licensing its technology.

Add it up and this could go down as more of a bar fight than a title bout. Both Palm and Handspring have growth potential, but their shares may still end up falling to the canvas. K --JOSEPHINE ROSSI

SPOTLIGHT | Palm

[] Symbol: PALM (Nasdaq)

[] Recent price: $53

[] IPO closing 3/2/2000: $95

[] Earnings per share: 2000: $0.11 2001: $0.13(e) 2002: $0.21(e)

[] Web site: www.palm.com

[] Shareholder services: 877-696-7256

(e) estimate SOURCES: Thomson/First Call, Yahoo!, company documents

SPOTLIGHT | Handspring

[] Symbol: HAND (Nasdaq)

[] Recent price: $62

[] IPO closing 6/23/2000: $23

[] Earnings per share: 20000: -$0.59 2001: -$0.50(e) 2002: $0.02(e)

[]Web site: www.handspring.com

[] Shareholder services: 650-230-5000

(e) estimate SOURCES: Thomson/First Call, Yahoo!, company documents

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