By Paul Larson (TMF Parlay)

If Joe thinks that PDAs are little more than electronic address books, I think he should buy one and try it out for a month. He could always resell it on eBay (Nasdaq: EBAY) if he didn't like the device -- but I think he'd be hooked. The fact is that PDAs are weaving their way into our society, and the potential applications for the devices are limited only by the imagination.

Concerning old-fashioned paper organizers versus PDAs, I'm sure Joe was also one of those back in the early '90s saying, "Eh, who needs this e-mail or Internet thing? The phone and the postal service work just fine for me." Mobile computing really is the wave of the future, and Palm is the leading pioneer.

The numbers also just don't pan out that PDAs are a passing fad. Palm has essentially doubled its sales over the past three years, certainly not characteristic of a company built around a flash in the pan. Joe also cited the increased competition in the PDA market, and I doubt the companies Joe listed would be getting into the industry if they didn't see vibrant growth ahead. And like I said, Palm should benefit nicely from the overall industry's growth.

Joe then brings up an interesting topic of convergence. Namely, how the mobile telephones, PDAs, and the Internet are quickly coming together. Joe tends to think that Palm.Net will be hobbled because it can't carry voice communications, and I tend to agree. However, I disagree that Palm won't be a major player in the emerging world of the Wireless Web.

You see, Joe is very right to point out that in a few years no one will carry both a PDA and a mobile phone. Nevertheless, he is wrong to assume that the mobile phone producers will create their own in-house PDA operating systems or license a second-tier operating system. As a consumer, should I choose a PDA-phone with an unfamiliar operating system that has few applications? Or should I choose the product that I don't need to relearn, doesn't require me to re-enter my information, and has dozens more applications written for it? For this reason, I think convergence favors Palm and its operating system in a big way. Nokia didn't license Palm OS for kicks and giggles.

Joe then asserts that the future health and growth of the Palm OS is not a sure bet. Study the network effect, Joe. The most users attract the most companies to create the end applications, and the enormous number of applications make the Palm OS much more attractive than other operating systems to consumers. This effect is largely behind Palm's success in the past, and it is one of the primary reasons I'm bullish about the future.

Joe then points to Palm's margins as a sign of weakness. This does not concern me because Palm is still a very young company that is going through a major growth spurt. I have full confidence that now that the company's infrastructure has been built, sales will grow much faster than Palm's expenses. This also means that Palm's profits should grow much faster than revenue as margins expand over time.

Finally, Joe touches upon Palm's admittedly high stock valuation. The fact that Wall Street has bid the shares up signals the market's collective optimism about Palm's future. And as they say, top-shelf companies rarely come on the cheap, and Palm's attractive attributes and competitive advantages certainly deserve a premium price.

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