Comments on: Palm Stock Split Today

Palm Inc's recently announced 2 for 1 stock split took effect today. The split has increased the number of PALM shares outstanding to more than 100 million, from 51 million. Palm made the move to help the company align its capital structure to that of other companies with comparable revenue. It is currently trading at a split adjusted $20~ per share. Palm will be announcing earnings and 3Q FY06 results next week.

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Capital Structure

ocspub @ 3/15/2006 7:48:21 PM #

> Palm made the move to help the company align its capital
> structure to that of other companies with comparable revenue.

What exactly does that mean? A stock split is a cosmetic change of the stock price (it looks cheaper), but that's about it, as far as I understand. Are they trying to get more individual shareholders by virtue of having more shares out there? Somehow Warren Buffett has never felt the need to "align the capital structure" of Berkshire Hathaway.

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RE: Capital Structure

stonemirror @ 3/15/2006 10:43:31 PM #

It means what you say: they want to keep the per share price within a particular range. No company wants their stock to be priced under ten bucks a share, since that makes it less likely to attract institutional investors. Likewise, some companies don't like to have their stocks go above a particular price point.

Just because Berkshire-Hathaway doesn't do it doesn't make it wrong for Palm to do so. Apple, Microsoft and numerous other tech companies (and others) do this sort of thing as a matter of course.

RE: Capital Structure

AdamaDBrown @ 3/16/2006 1:42:06 AM #

According to Palm's statements, they wanted to increase their total outstanding shares to match other companies of similar revenue.

RE: Capital Structure

ocspub @ 3/16/2006 1:51:56 AM #

> Just because Berkshire-Hathaway doesn't do it doesn't make
> it wrong for Palm to do so. Apple, Microsoft and numerous
> other tech companies (and others) do this sort of thing
> as a matter of course.

Another example would be Google -- they have (AFAIK) shown no interest in splitting their stock. Maybe they consider it evil. Maybe they expect it to fall through natural causes ;)

IMO, splitting shares in the $40 range is just "playing games".

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RE: Capital Structure

PenguinPowered @ 3/16/2006 2:53:31 AM #

Yup, it is just playing games. But it's games that the market seems to want you to play.

It's not just stock prices, either. Consumer product feature sets are often picked to put the price of the object within a certain range, (sometimes cynically called the "Joe Sixpack" number) because that range makes it an impulse buy.

May You Live in Interesting Times

RE: Capital Structure

SeldomVisitor @ 3/16/2006 7:50:25 AM #

From a somewhat-PALM-pessimistic POV, PALM split their stock to reduce the volatility of the price, IMHO.

There are others who think they wanted to increase liquidity but I personally think that is wrong since PALM already trades pretty well (albeit the Inside Bid and Ask action is unusual and unique among all the stocks I watch - and REMAINS unusual and unique now that the split has happened).

If they did indeed want to reduce volatility, they have failed - the price is still bouncing around like a yo-yo.

If they did indeed want to reduce volatility, there is the KEY question of why they wanted to get this in place a mere week before their next earnings report rather than after - some of us out here think that report may not be the best PALM has had (otherwise, this would have gone in place AFTER the report to allow the stock to take advantage of a nice rise first).

We'll see! Waiting with bated breath...

Whatta game!

RE: Capital Structure

Surur @ 3/16/2006 9:31:05 AM #

My personal view has always been that the fundamentals of the success of the Treo has very little to do with the device and a lot more to do with sentimental stuff, ie POS loyalty restricting POS users to only one smartphone option, which will therefore get their upgrade money. Palm's own presentations show the vast majority of their buyers are upgraders. I believe there is a base of around 10 million people, mainly in the USA, who are POS loyal, and started using the devices in the Dot.com bubble. Palm has been sustained ever since by this small base of users, and they are now moving en masse to a converged device, which basically means the Treo.

The implication is that, like the PDA wave, this movement will also crest and reach saturation, and people will be left to wonder what went wrong. The second implication is that POS upgraders wont go for a WM device, which is bad news for the Treo 700w. Palm also dreadfully underspecified the Treo 700w, which wont appeal to the more power-user centric WM community.

Palm is currently riding the wave of the POS Treo success, but I can see the beach coming, and its looking like a rocky one.

Surur

They said I only argued for the sake of arguing, but after an hour I convinced them they were wrong...

RE: Capital Structure

ocspub @ 3/16/2006 12:24:13 PM #

> Palm is currently riding the wave of the POS Treo success,
> but I can see the beach coming, and its looking like a rocky one.

Isn't that true for most one-pony companies? I guess when they get there, they can always do a reverse split to prop up their share price, eh, "align their capital structure" :)

Oliver

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RE: Capital Structure

JarJar @ 3/16/2006 4:18:18 PM #

I'm not a hundred percent sure why these guys are splitting. They have always been good at distraction games. My best guess is that they want to disguise future losses; they split so that loss per share will be lower.

In any case, Palm top management has always been more concerned about the stock than they have been about the product to a fault. (waay to a fault)

RE: Capital Structure

freakout @ 3/17/2006 3:20:29 AM #

Surur: "The second implication is that POS upgraders wont go for a WM device, which is bad news for the Treo 700w."

Not yet. In year or three when Garnet really does become too old to be of use, then they might reconsider. We'll have to. :(

Unless, of course, ALP turns out to be the best thing since sliced bread and Palm chooses to license it. Still no word....

This sig is a placeholder till I come up with something good

RE: Capital Structure

Slam @ 3/18/2006 4:45:55 PM #

Palm will ever license ALP. They've moved on to Windows Mobile. Transition in process.

The split has some possible positive implications that Palm has good expectations about its future and upcoming announcements.

Sure the 700w might not appeal to the niche of power users but seems to be doing pretty well with selling it to a much larger customers set of business users. We'll get more info on this this week with the earnings release.

More thoughts on this at my blog:
http://www.slamblog.com/

RE: Capital Structure

Surur @ 3/18/2006 5:12:22 PM #

Slam, I like your blog. Its rare to see anyone actually look at the numbers, and not just the words.

Surur

They said I only argued for the sake of arguing, but after an hour I convinced them they were wrong...

RE: Capital Structure

Ryan @ 3/18/2006 6:28:48 PM #

your Treo sales numbers post is excellent, its good someone is keeping track of that. It will be real interesting to see how the 700w comes into play next week.

RE: Capital Structure

Slam @ 3/19/2006 1:56:20 PM #

thanks for the comments guys.

RE: Capital Structure

Surur @ 3/19/2006 2:02:50 PM #

One thing you are missing from your table is the normal palm PDA numbers. Its interesting how one declines in step with the other's increase, with quarterly totals always coming to about 1 million. The question is, what is the real upside to the Treo. Will it reach saturation or keep on climbing?

Surur

They said I only argued for the sake of arguing, but after an hour I convinced them they were wrong...

RE: Capital Structure

hkklife @ 3/19/2006 3:04:59 PM #

In theory, Palm will always have ("always" being the next 2-3 years) a built-in audience that can pretty much guarantee PDA sales. Even if they stick with FrankenGarnet through the expiration of the licensing deal with PalmSource (2009 IIRC) there will continue to be a small but profitable niche market (especially at retail) for $150 and below basic PDAs...same statistics there as the ones that have kept the Sharp, Royal, Casio etc. "digital diaries" in production nearly unchanged for the past 20 years.

Some people just want something to keep contact & appointments in other than a cell phone. Palm could continue to prop up the occasional bump in the Treo road with a line of occasionaly lightly facelifted OS 5.x PDAs

I too would be curious to see recent PDA sales figures. I bet the T|E was the hot one in '04 with no real big seller in '05. TX looks to do very nicely in Q4 '05 and through the rest of '06.

Retail update:

I was at BB the other day. The LifeDrive has already dropped to $399.99 and the TX has had its price RAISED to $308! The T|E2 was at $205 strangely enough. BB sometimes does this (rounding MSRP UP to a whole number) prior to EOLing a unit (I saw it in the past with older Palms (T3) and certain iPaqs). Remember, BB had essentially dropped their PDA department a year ago with just the T|E and Z72 hanging in there prior to the arrival of the TX & LD. I am still surprised BB doesn't carry the Z22.

Pilot 1000-->Pilot 5000-->PalmPilot Pro-->IIIe-->Vx-->m505-->T|T-->T|T2-->T|C-->T|T3-->T|T5-->TX

RE: Capital Structure

Slam @ 3/20/2006 8:42:49 PM #

Surur,
Thats a very good point about Treos just replacing PDAs. I don't have the complete numbers for PDAs. It would be nice to source this and put up another post/table with this comparison. But on anecdotal data it seems that 1) Treos are indeed canibalizing PDA sales (Palm Management will admint this) and 2) Treos are attracting new customers to Palm as well. The key question of course is what are the percentage of Treo users that are not former PDA customers.
One good thing seems to be that the 700w is attracting the former Pocket PC customers. Those are clearly a net win to Palm but it will be some time before Palm breaks out the Treo 700w numbers from other Treos.

RE: Capital Structure

Slam @ 3/20/2006 8:51:36 PM #

Of course turning a 10-15 million user base from products that have ASP (average selling price) of $165 to $450 is a pretty good business by itself. Attracting new users and users of cometing products adds a lot of gravy to this business.