BY DAVID SPEAKMAN

Bleeding money, Handspring, Inc. is attempting a series of
financial acrobatics to survive.

It recently eliminated 50 jobs, slashed expensive programs and junked plans to move to a new, high-profile Sunnyvale headquarters to give its bet on wireless time to pay off (see related story, page 1).

The company, whose founders pioneered personal digital assistants, will exit the organizer business in the next two months as worldwide demand for handheld computers slumps.

While reporting a second-quarter loss Jan. 16, the Mountain View-based maker of PDAs and cell phones based on the Palm Inc. operating system, announced it will pay up to $80 million to back out of its $350 million, 12-year lease signed in 2001. Moving to the two new office buildings, built by Mozart Development Co., would have made Handspring the main tenant in Sunnyvale’s redeveloped downtown.

Handspring will pay Mozart $61.2 million in cash and an additional $5 million in various debt payments during the next five years. The company also will issue Mozart warrants to purchase 10 million Handspring shares. Because of the settlement, Handspring says it expects to post a charge of between $75 and $80 million in the current quarter.

“Prior to this, Handspring was paying $2.5 million per quarter to service the lease obligations,” says San Francisco-based analyst Jason Tsai with RTX Securities. “Handspring continues to work through tumultuous times.”

Another tourniquet applied to the cash bleedout is a phasing out of the company’s vanilla organizer business. Handspring will bow out of PDAs and focus solely on selling its Treo Communicator family of Palm-enabled cell phones.

Treos are sold mainly by mobile telephone carriers, such as AT&T Wireless, Cingular and Verizon Wireless. The company said it sold 50,000 Treo Communicators last quarter, priced between $450 and $500, bumping up its total Treo customers to 140,000.

“With its business so focused on its Communicator business, Handspring is at the mercy of its carrier partners and their buying requirements,” Tsai says. “Handspring will need to secure new, strategic carrier relationships in order to have a viable long-term business plan. While we do believe Handspring will be able to secure these relationships, timing is critical.”

Handspring has never made a profit and time may be running out. After the $61.2 million payment to Mozart, Handspring’s non-restricted cash balance will be about $50 million, and restricted monies will amount to $2.3 million.

Bear Stearns analyst Andrew Neff says with Handspring currently burning between $10 million and $12 million a quarter, the company is dangerously close to running out of funds. Neff speculates that Handspring could face bankruptcy unless it turns a profit by year’s end, as Handspring management claims it should.

During the company’s earnings conference call with analysts, Handspring CEO Donna Dubinsky said the $61.2 million price tag to buy out the lease is worth it.

“By significantly reducing our original financial obligation, we lower our break-even point, and we are better positioned to achieve our goal of profit by the end of the calendar year,” she said.

New York-based analyst Charles Wolf of Needham & Co. says the continued viability of Handspring depends on its ability to ramp up sales of Treo Communicators.

“The slope of that ramp remains the wild card,” he says.

Even if Hanspring manages the ramp, analysts and investors are waiting to see if the company can stick its landing.

BY DAVID SPEAKMAN

Best known as a founder of rich-media software innovator Macromedia Inc. of San Francisco, Marc Canter’s reputation is on the line as he bets on a sector that has eluded the promised land of profitability for years: broadband Internet.

Twelve years after leaving Macromedia, interactive multimedia evangelist Canter is creating a new type of digital lifestyle product at Broadband Mechanics Inc., a San Francisco startup he founded and funded in 1999.

Canter believes future human communication will involve technology and the Internet on a scale only imagined.

“I’m a creative type of guy. I’ve always focused on enabling people to express themselves creatively,” says Canter , whose first digital forays began in electronic music.

He expects Broadband Mechanics will revolutionize audio-, video- and text-based communications with a range of products from multimedia Web chat and conferencing to shared audio and video entertainment. His company is developing software to bridge gaps and fill niches left by current e-mail, instant messaging, chat, blogging and Web conference software.

Canter’s vision depends on universal adoption of broadband Internet, which he is quick to point out is not there yet.

“What we’re calling broadband today is what I call ‘mid-band,'” he says of digital subscriber line and cable-modem technology, which transfers data between 300 kilobits to 1 megabit a second. “Real broadband is about 5 megabits per second. If we had real broadband, we could then stream DVD-quality movies over the Internet.”

Until then, Broadband Mechanics’ research focuses on home networks, which can work at faster speeds than DSL or cable modems to connect computers, mobile phones, personal digital assistants, personal video recorders, printers and MP3 players. Broadband Mechanics is committed to producing technology based upon open standards.

“The last thing we need is Microsoft to shove another standard down our throat and control everything,” Canter says.

“Marc has the unique ability to identify with the seemingly nascent area of business down the road in the future that can be incredibly lucrative,” says Dave Jacobs, Broadband Mechanics’ acting CEO.

Canter shares his view of the digital future at http://blog.canter.com.

BY DAVID SPEAKMAN

After a year of planning, Silicon Valley’s newest, independent bank is planning to open its doors in a downtown San Mateo office building by Memorial Day.

United American Bank joins a Bay Area trend of independent bank startups unafraid of entering a market dominated by Bank of America Corp., Wells Fargo & Co. and other mega banks.

Last May, Santa Clara-based Bridge Bank opened. In December, a group of Danville investors filed with the state to create the Diablo Valley Bank. A third bank, Legacy Bank, is under organization in Campbell.

Currently in organization as well, San Mateo’s United American was approved as a state-chartered bank in November and will open its doors as a full-service bank once it raises $11 million to $14 million in capital. When it moves into a newly-built headquarters at 101 South Ellsworth, it will target San Mateo County’s small and medium-sized businesses.

“There are 23,000 companies based in San Mateo County and 22,000 of them fall into the category we are aiming at,” says United American president and CEO John Schrup. He says the bank is currently talking to prospective investors and expects to easily reach that target.

“We have a list of 1,500 potential investors lined up,” Schrup says. “We could easily go above $14 million.”

That amount of financing would allow the new bank to issue business loans up to $4 million, which meets the needs of most small- and medium-sized businesses. United American’s needed capital is small change compared to the capitalization of its larger competition. Bank of America Corp. has assets of $622 billion, San Francisco-based Wells Fargo & Co. has $308 billion and Palo Alto’s Greater Bay Bancorp has $8.1 billion in assets.

United American’s closest small, independent banking competition would be the independent Bridge Bank, which reported assets of $170 million at the end of September, and has a branch office in Palo Alto.

Schrup says there is a noticeable absence in locally-based banks on the Peninsula and none in the city of San Mateo, which offers an opportunity. He says, “a lot of what used to be locally-based banks got gobbled up by Greater Bay Bancorp,” a Palo Alto-based bank holding company.

“If you look back 10 or 12 years ago, there were over a dozen independent banks, all of which were under a half a billion dollars in size,” says Bridge Bank CEO Dan Myers. He says having a healthy, competitive small banking market is good for local small businesses.

Myers says he doesn’t see United American as being a significant competitor to Bridge Bank, because the two banks’ markets do not overlap much.

Like other independent banks in areas dominated by banking giants such as Bank of America and Washington Mutual Inc., United American plans to leverage it’s hometown-based management.

“All business decisions will be made right here, not in Washington or Charlotte, N.C.,” Schrup says. “We’re not going to compete branch-for-branch with Wells Fargo or BofA, but will counter their breadth of reach will a strong Web presence, courier service and free ATM access.”

“A locally-based bank typically gets about 25 percent of the market for smaller and medium-sized businesses,” says James Avery, a San Luis Obispo-based consultant who specializes in researching the market potential for start-up banks.

He says local businesses are attracted to hometown banks because they can speak to the bank president rather than a branch manager.

“If we get one-tenth of one percent of that market, we’ll more than meet our goals,” says United American’s Schrup.

Chicago-based financial research firm Briefing.com says this is a strategy that won’t work in most markets.

“What we’ve really been seeing over the past decade is the smaller banks can’t compete with larger banks,” he says. “Small hometown banks are just not as lucrative as a Bank of America or Wells Fargo.”

But with $10 billion in bank deposits, San Mateo County suburbs don’t add up to your typical small town.

“The demographics on the Peninsula are the best in the country,” United American’s Schrup says. “The average bank branch in America has $52 million in deposits. In San Mateo County, it’s $92 million.”

Schrup says the way to capture San Mateo business is not to shut out the public in favor of larger business accounts.

“I don’t want anybody turned away from any service they want,” he says.

Initial investor funding should be in place by the end of February with United American launching in May as a full-service bank offering everything from business loans to individual checking accounts.

“Our business plan is one that others have employed successfully elsewhere for years and we have the people to pull it off here,” Schrup says.

New metro wireless standards set

A new broadband standard has been set that could provide wireless Internet service to laptop computers.

Called 802.16 (similar to 802.11 Wi-Fi technology), the new service will allow broadband wireless metropolitan networks (MANs), which could cover an entire city or metropolitan region.

The standard was approved by the Institute of Electrical and Electronics Engineers (IEEE), the industry governing body responsible for creating Internet standards.

Current Wi-Fi wireless technology is limited to local area networks and has a reach of about 300 yards. The new standards enables service between two and 30 miles per hub depending on a location’s topography.

Proponents say this new standard could usher in a new era of Internet usage for mobile devices such as laptop computers and wireless telephones.

“It closes the first-mile gap, giving users an easily installable, wire-free method to access core networks for multimedia applications,” says Roger Marks, chairman of Denver-based 802.16 Working Group on Wireless Broadband Access.