In this second interview series with Eric Benhamou, we discuss his involvement with Palm. If you haven’t already, do read the first interview series for context [here]. As you know, Palm is in the midst of a great deal of change at the moment. However, it is an important company that established the PDA category, then led the SmartPhone movement. Somewhere along the way, however, things went wrong, and this interview with Eric would help us understand the history of Palm, and perhaps, assess its turnaround prospects on which I have written extensively. Overall, in the convergence device category, I still think Palm has a great opportunity ahead, IF they can clean up their act.
SM: We stopped at the point where Donna and Jeff had left 3Com. Later, the time came when you were ready to spin Palm off as a public company. So we can resume the discussion from there. What happened from that point on in terms of valuation and industry dynamics? What did you find waiting for you on the other end? EB: This all occurred at the peak of irrational exuberance. This was when NASDAQ went from 4,000 to 5,000 in a couple of months. In fact, at the time when we did the road show in February of 2000, NASDAQ was flirting with 5,000 – it was near record level.
We increased the filing range multiple times and when it came time to price the deal it was clear that we had the opportunity to price it at the very high end of the highest range we had filed at. It was a bit of an acyclic business challenge because anyone who had their feet on the ground knew the market had gone totally crazy, and that they should not be overly confident. We had a good business but we did not have that good of a business, or the slush money, to warrant the price of our options.
However, when it comes down to it, as a public company CEO you are there to maximize the value of each share for shareholders. It does not matter whether the buyers are sensible or not. We spent considerable time discussing the tradeoffs between pricing reasonably and aggressively, and we decided to go aggressive. We opened at $32 and we closed at $100. When we finished our first day of trading, Palm was worth more than Ford and General Motors combined, which was totally incredible.
SM: You mean ridiculous! Your revenue at the time was $500M, right? EB: I believe we had passed the $500M rate and we were between $500M and $1B. The company was profitable, unlike some of the other Dot Coms that could not make profits. Palm offered a real, tangible business where people were buying the products. Clearly the valuation was unheard of. We knew this was a mixed blessing.