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By ntoriusdan
August 1, 2001

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Hi I bought some shares of HAND, I am expecting to make a profit, sooner or later. But I am surprised with the recent downturn in the stock. Is there any particular reason for that?

Hi. First of all, while I don't own shares of Handspring (HAND) or Palm (PALM) -- nor am I planning on buying any -- I'd like to wish you the best of luck with your investment. At the same time, I think there are a couple of good reasons for the recent downturn in the stock price.

I would like to discuss the fundamentals of the Handspring with a person who is willing to share his ideas about the company.

That's why we're all here -- well, most of us at least ;)

Anyway, getting back to the discussion, HAND is definitely the most innovative company in the space. They have clearly brought more new ideas to the table than any of the other companies in the field. Their biggest (but perhaps only) asset is their Springboard and the compatible modules. These modules are the primary reason for people even considering PDAs as having the ultimate potential to become our "all-in-one portable devices."

I believe in the future of PALM devices, despite the Microsoft competition. PALM became the standard for the handheld, and they are very functional. They are making more progress by including new features.

I strongly disagree with you here. It is way too early in the game to tell whether the PALM OS or Windows Pocket PC will win the battle (not to mention Microsoft's upcoming release of the Stinger platform). While Palm's OS has the lead right now, that lead is shrinking month by month. Let's also not forget that Microsoft just announced that they're going to make their code open source... a very big announcement that evens the score that much more.

As amazing as some of the programs made for the Palm OS may be, Windows will have those PLUS full compatibility with Word documents, Excel spreadsheets, Windows Media Player files, etc. THOSE are standards -- we haven't seen adoption rates for one specific portable OS like the ones for the above programs.

Speaking of standards, how do we even know that the PDA will prevail as the standard for portable devices? Personally, I think that the next generation smartphones will rule the roost. Here's why:

Familiarity
There are more people all over the world who already have cell phones (and in many third world countries, cellular phones serve as the primary phone since telephone lines are either too costly to put up or have been destroyed by war). PDAs haven't come close to the market reach that cell phones currently enjoy, and I don't see the spread getting any thinner.

If an all-in-one device is what people will eventually demand, it will be a device that they are most familiar with. The device will therefore be more like a cell phone with PDA capabilities than a PDA with phone capabilities.

Awkwardness
I've tried the Smartphone, and it is the most inconvenient way to talk to someone wirelessly. It's bulky, uncomfortable on the ear, my cheek makes marks on the screen, and as far as I know, there's no car charger or hands-free device that I can use to prevent me from getting a ticket for talking while driving (I live on Long Island where talking and driving is a big no-no).

I'd like to dwell more on the PDA/Smartphone issue, but let's get back to some of your other statements:

"Its founders are very quality people. One of them is the person who developed PALM originally and some of the management and technical people are from PALM, as you know...it is the PALM not the handspring that caused dramatic cuts on the prices. So I still believe in the company's management."

Jeff Hawkins and Donna Dubinsky are definitely some good people to have running the show and certainly have the most experience in the PDA industry. However, let's say you're right that the whole problem arose because Palm slashed their prices -- doesn't it scare you that all it takes to destroy HAND's stock price are some dramatic price cuts on its competitor's products? Donna and Jeff, as bright as they are, couldn't come up with a way to do anything about this...

Despite these advantages why do people think it isn't worth it to buy the shares of the Handspring, or why do they sell? Is this a temporary situation that has nothing to do with the fundamentals or is there something that I don't know?

Here's my theory:

Let's assume for a second that smartphones win the portable device battle. Who remains and who gets left in the dust?

First, we have to figure that these devices will run on some sort of OS. Even if we don't know who the clear winner is right now, we can assume that either PALM or MSFT will gain most of the OS market, OR they'll split it evenly (I have my doubts on the latter). So we can fairly say that PALM and MSFT both bring something to the table and are therefore invited to the party.

Next, we have to assume that there will be device manufacturers. Since these devices will be more like cell phones (remember, this is just my theory), it only makes sense that companies that currently make cellular phones will have the edge in the future when it comes to manufacturing the smartphones. It's simply impossible to think that a company like Casio or even HAND will be able to compete with a Motorola or Nokia when it comes to making smartphones. The phone companies have too much of a lead and MUCH deeper pockets to spend handsomely on R&D. We can also assume then that cellular phone manufacturers like NOK, MOT and Siemens will have something to bring to the table and will likewise be invited to the party.

But where does HAND fit in? They don't have any intellectual property in terms of an OS, and they can't just become a cellular phone manufacturer overnight. They aren't the standard in any respect no matter how one looks at it. IMO, this is a major reason why HAND has continued to slide. In a post-PDA era, HAND is in a very bad position.

What could they do to save themselves?
Handspring does have an option, although I'm not too sure that even THIS could work. Basically, there IS something that they bring to the table: EXPANSION. HAND is far and away the leader when it comes to their expansion slot, as well as accessories to go with their portable devices. Theoretically, HAND could become the leader in expansion and accessories for all portable devices. They could license their Springboard out to both PDA manufacturers as well as the cellular phone manufacturers. They've now become the standard in expansion and if their slots are on the backs of every portable device, they can now market their accessories and modules to every single consumer that owns a portable device.

It's a reach, but frankly, I think it's the best shot they have -- unless of course a company like Nokia decides to take them over. It would most likely be an attempt to join the most innovative cell phone maker with the most innovative PDA maker to create the ultimate smartphone (with HAND's market cap where it is these days, you never know...).

Anyway, I think HAND has a lot more to worry about than PALM's price cuts on its older models. It should be very interesting to see how things play out. Again, I wish you the best of luck with your investment.

Dan

By the way, here is a link to an article featuring two of the better smartphones out there.
 
(Interestingly, the Nokia 9210 runs on the Symbian platform)