Why Is Palm Still Standing? - InformationWeek

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04:30 PM
Richard Martin
Richard Martin

Why Is Palm Still Standing?

In view of the latest earnings report from Palm Inc. -- a quarterly loss of $9.63 million (compared with a $12.8 million profit a year earlier), revenue down 11%, and a stock in free fall -- it's time to ask, Why does this company still exist as an independent entity?

In view of the latest earnings report from Palm Inc. -- a quarterly loss of $9.63 million (compared with a $12.8 million profit a year earlier), revenue down 11%, and a stock in free fall -- it's time to ask, Why does this company still exist as an independent entity?Palm has been rumored to be for sale for what seems like five years -- at my previous outlet, Unstrung, we made a habit of regularly reporting that a deal was in the works. With its window for releasing a world-beating, or even semipopular, new handheld device now closed, its operating system long obsolete, its developer community scattered, and its brand now swamped by hipper, cooler devices (see "iPhone, Apple"), Palm has virtually no future as a successful public company. But like Generalissimo Francisco Franco, Palm management seems intent on dragging out this death scene beyond all reasonable length.

I polled some of the sharpest analysts I know to ask one question: "Why is Palm still an independent company?"

The most common response was, as Jack Gold, principal with J. Gold Associates put it, "The question is, who would want them at this point?" Palm has neither a thriving customer base nor a hot technology to offer to any possible suitor, such as oft-mentioned buy-out possibilities Nokia and Motorola. Those companies (to which Palm executives have almost certainly talked about a purchase in the last year) must feel that a) there's no urgency, and b) the longer they wait the lower the price.

The second answer lies in the cash infusion Palm got last summer. "The future for Palm is really Elevation Partners," the Silicon Valley private-equity firm that put in $325 million in June, says Ken Dulaney, mobile and wireless analyst at Gartner. "As long as they stay in and keep the company going, they will continue."

Answer No. 3 has to do with Palm's legacy, as embodied by co-founder Jeff Hawkins. Besides being a true pioneer in the mobile computing field, Hawkins is both a genuinely engaging fellow and, like most Silicon Valley geniuses, an egotist. The thought of selling off his beloved company, which ditched his pet project, the Foleo, earlier this year after a risible market response, must feel like utter defeat to Hawkins, whose other venture, Numenta, hasn't exactly set the world on fire, either.

Every company, and every brainiac founder, has its price, and Palm may be approaching the point where a breakup or a fire sale is the only option. Certainly Elevation Partners isn't going to stand by and watch that one-third of a billion go down the tubes. Motorola, whose own enterprise arm, Symbol, is itself losing market share, could use the Palm Treo technology and the (supposed) new Linux-based OS that's in the works. Here's another prediction for you: The Schaumburg, Ill.-based handset vendor will reach a bargain-basement deal with Palm, uhh, sometime in 2008.

But I wouldn't take that to the bank.

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