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Phone.com's Fantastic Flight

It finally cooled off, dropping almost 20% from Tuesday to Thursday's market close, but Phone.com remains the biggest gainer of all Internet stocks in the past month.

Shares of PHCM were back up again Friday, too, even as the Nasdaq and most Internet stocks were being battered. After closing Thursday at $115 per share -- down from $141.88 on Tuesday -- Phone.com was trading at $128 early Friday afternoon.

Phone.com's stock currently is worth nearly three times the Aug. 4 closing price of $45.38, and nearly twice the July 29 closing price of $66. Right now, PHCM shares are among the half-dozen most expensive of all Internet stocks, and its market cap of $3.8 billion puts the company formerly known as Unwired Planet among the top 20 or so most highly valued Internet players.

It also may be the most overvalued of all Internet stocks. With $2.2 million in sales in 1998 and $6.7 million in the nine months ended in March, Phone.com stock is trading at anywhere from 300 and 2,000 times revenue.

So what's behind all the excitement?

Several things. In the short-term, the company, which went public on June 11 at $16 per share, got a huge boost earlier this month when Sprint's PCS division announced it would sell new wireless phones featuring Phone.com's software. PHCM rose 30% that day and kept climbing.

The software enables cell phone users to access the Internet and corporate intranets to use e-mail and get basic information such as stock prices, weather, sports scores and driving directions.

Not only does this sound really cool, it is an inevitable step as the Internet and wireless technology continue to converge.

Unfortunately, sometimes cool and inevitable technology products don't catch on. Remember pen-based computing? Sometimes it's just a matter of bad timing, but I think there is a more fundamental problem with the notion of Internet access via phones: The trend toward smaller cell phones conflicts with the need for adequate screen size when using the Internet.

In other words, they're two different pieces of hardware, used for different things. Have you ever tried to download e-mail on a cell phone? Don't expect any Excel spreadsheets. The tiny screen means only the shortest text messages are worth viewing.

And when was the last time you wanted to surf on a two-inch wide monitor? It just doesn't work.

The other problem here is that virtually every widespread deployment of wireless technology has taken longer than the industry expected, in large part because wireless world is a dense jungle of warring standards efforts. Wireless data to a cell phone sounds great, but let's see it work consistently first.

None of which is to say that Internet access via wireless phones don't have a future. Market research firm Dataquest estimates the number of wireless data subscribers in the U.S. will grow from 1.4 million last year to 36 million by 2003. Dataquest projects a $3 billion-plus market.

It's a crowded market though, with GTE, Qualcomm, Pacific Bell, AirTouch Communications, Omnipoint and many other players.

All of which is to say that this level of investor enthusiasm for Phone.com is premature. It's an interesting, early-entry company in an industry with large competitors and a history of nagging technological issues. I just wouldn't buy into that at today's prices.


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