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Stockholder pain may soon end. Based on an Unstrung.com posting, multiple media outlets have been reporting that Nokia (NYSE:NOK), Motorola (MOT) or even a private equity firm may soon announce the purchase of Palm (PALM), maker of the Treo smartphone.

I'd put my money on MOT - it would have a carrier-certified hardware device to complement its recent purchase of mobile email software maker Good Technology and thus possess a complete offering to counter RIMM's (RIMM) Blackberry and Apple's (NASDAQ:AAPL) iPhone.

Dealbook covers MOT's potential interest, and Om Malik provides further analysis, noting MOT CEO Ed Zander's cancellation of his keynote address at CTIA next week.

However, it may be former Handspring shareholders who finally receive some relief and can put their original investment behind them.

Company History
Some background. Palm originally developed the Palm Pilot personal organizer in the 1990's as a division of modem-maker US Robotics. It became a subsidiary of network equipment maker 3Com (COMS) in its acquisition of US Robotics, and was later spun off to the public in March of 2000 at a very high valuation. Palm's founders left the firm to form their own company, Handspring, initially selling Palm pilot like-clones with a plug-in dock but then focusing on the smartphone market by introducing the Treo.

Prior to the Treo's development, Handspring also became a public company at a ridiculous valuation. Unfortunately, even after a substantial stock decline, many (like me) invested too early - the first Treo, the 300, possessed an awkward flip-cover, an ok interface, and only operated on Sprint's first generation (slow) wireless data network. Sales lagged, and Handspring's stock tanked.

It got worse. At the height of the dot com boom with Silicon Valley real estate at a premium, Handspring agreed to a long term, guaranteed lease of office space that they barely occupied - a huge off-balance sheet-type liability. To escape the lease, they had to pay over $50M to the landlord, halving their IPO-derived cash balance while attempting to simultaneously introduce a brand new, specialized product. Without the penalty, they could have allocated the lease termination fee to R&D, marketing and brand establishment, but had to remain conservative in their spending.

Handspring fortunately developed enough traction and multiple cell carrier support to release a second edition, the Treo 600, becoming very popular with business and personal users. To gain access to the Treo product line and Handspring's relationships with carriers, Palm decided to acquire the firm. Riding the Treo's wave of popularity, Palm's stock reached the mid-20's in 2006, but, RIMM, leveraging its superior email interface and software, became more aggressive in offering new hardware products such as the Pearl and 8800, stunting the Treo's sales growth.

Palm CEO Todd Bradley left, former Handspring exec Ed Colligan assumed the CEO slot, and Mark Hurd at HP (NYSE:HPQ) later recruited Bradley to manage its PC division. As I understand, HP recently has been creating havoc for Dell (NASDAQ:DELL) in home and business computing.

With additional competition via the T-Mobile Sidekick and upcoming iPhone and the release of carrier branded, Windows Mobile-based smartphones, Palm faces a dilemma. It hasn't significantly slimmed or redesigned the Treo in several years, but with no debt, lots of cash, carrier relationships and loyal users, it's attractive to either MOT, NOK or private equity that could lever the firm with cheap debt. Again, MOT seems the logical buyer - it would be an opportunistic purchase, but I doubt that the Treo can help restore MOT's operating margins in the short term.

Tech Investing Takeaways
What are the lessons for tech investors? Many times, investors are too early. From IPO to Treo introduction, Handspring (and PALM, pre-Handspring acquisition) shareholders lost a significant portion of their investment, and the firm offered a viable product only on the second/third iteration.

Second, always perform thorough due diligence, dig for all possible risks, and be careful as a public, individual/retail shareholder. The lease liability was not an apparent, product/technology-related risk, had been buried in Handspring's 10Q's and 10K's and quickly spun out of control. The firm released very little information regarding the issue until the last minute. All said, Handspring had neither the product depth, revenue, or earnings to have ever become a public company, and Palm should barely be public - its later organizer offerings were unpopular and quickly became obsolete, and the firm poorly prepared for current Treo competition.

Overall, all shareholders should demand a significant discount for assuming the substantial investor risk embedded in the tech industry. Retail investors should consider themselves, and will be treated as, outside, passive, minority equity holders. Without the advantage of low priced employee stock options or a venture-connected investment at low valuations, potential shareholders should constantly reevaluate these risks, known and unknown. Technology firms will continue to lead the world in employment, profitability, and innovation, but, as an investor, be sure to pick your spots.

Disclosure: Long AAPL

PALM 1-yr chart:

Source: Palm: Shareholders Eagerly Await Buyout News