Is Palm Deal Done?

By Kevin Hill on 23 Mar 2007 11:42 am
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palm logoPalm was a pioneer. I think most of us heard the phrase 'Palm Pilot' long before we heard 'BlackBerry.' But the company that led the way in creating the smart phone, and the maker of the Treo, might not exist as an independent company for much longer if persistent rumors turn out to be true.

Palm, which is based in Sunnyvale, California, has been the subject of takeover rumors for more than a month. Texas Pacific, Nokia, Dell, Hewlett-Packard and Motorola are all reported to be interested suitors.

Palm isn’t doing too badly in terms of revenue. Palm reported revenue of $410 million in the reporting quarter that just ended, up from $389 million in same quarter in 2006. And this despite some delays in getting their new model out. In 2006, Palm shipped 2.4 million devices, a 20 percent increase over 2005.

But the smart phone business is a fast moving one. Where RIM and Nokia, for example, are bringing out multiple devices this year, Palm hasn’t kept up and their devices are looking distinctly clunky and thick. The Palm hasn’t altered substantially since the introduction of the Treo 600 back in 2003. And while sales are up, those 2.4 million units only represented three percent of the 74 million smart phone units sold in 2006.

But this is nothing new. People have been saying these things for a year. Why the sudden interest?

Firstly there is a belief that the costs with introducing new operating systems and introducing a radical new design will have to be addressed in the next six months. Furthermore, the Wall Street Journal recently reported that Palm had retained the Morgan Stanley company to shop the company around to potential buyers.

Yesterday, Palm released their quarterly results, which showed that while revenues were up there was a drop in profits for this quarter, but all questions were about the takeover. "As you can imagine, there's a lot of rumors and speculation out there and we're not going to comment on that stuff," said Palm Chief Financial Officer Andrew Brown.

Palm’s stocks had been going up in response to all the trade rumours. But yesterday, when news began to float around that Motorola and Palm would not announce a deal, Palm’s stocks took a nose dive. It remains to be seen if a deal can be reached or if another company is going to step into the breach.

What this means for BlackBerry and RIM is unclear. One less player in the field would be viewed as a good thing, but with Palm dropping to just three percent of the market, it is increasingly seen as a minor player in the smart phone industry.

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