Opinion: Palm Is Not Going to Fail
Yes, you read that right, Palm Inc. is not going to fail. True, they are going through a rough time right now but their current difficulties are not enough to bring the company down. So if you've been holding off buying a new handheld because you've been waiting to see if Palm would be around next year, I can assure you that it will.
Palm has gotten a lot of negative press lately but I wouldn't take it to heart. When a company shows signs of weakness, that company becomes News. I'm not sure why bad news is more interesting than good news but it's true. Just about anything negative that a reporter can dig up on a troubled company gets printed. Reporters have a lot in common with sharks. They can get into a feeding frenzy. When a reporter sees other publications running negative stories about a company, they think they should be running one, too. And readers tend to think that what gets printed must be important or they wouldn't print it, right? This isn't necessarily so.
Many of these news reports aren't giving you a correct picture of Palm's financial state. While it is true that Palm sales are no longer growing 100% every year, UBS Warburg estimates that Palm's sales will grow a respectable 20% this year. To hear some reporters talk, you'd think no one had bought a Palm since December.
Which isn't to say that Palm doesn't have some real problems. I'm not the first person to say that Palm's roll-out of the m500 series was probably the worst product release in history, with the possible exception of Osborn Computer's company-destroying blunder. They pre-announced the m500's and killed most of the demand for their current high-end product, the Vx. Then the m500's release was delayed, slowing sales for an entire quarter.
This was going on at a time when the entire U.S. economy was slowing, reducing demand for handhelds in general. Last fall, Palm made some deals with parts manufacturers to keep them supplied with the components they needed to build their handhelds. Makes sense, right? Unfortunately, in order to guarantee a steady supply, Palm agreed to buy a large number of components. This seemed to make sense at the time. Demand for Palm's handhelds was doubling every year. No one saw that the market might change and demand slow. So Palm got saddled with a lot of components they can't sell.
Not a pretty situation but I'd like to point something out that I think of as positive: just about all of this is self-inflicted. If Palm 's management team hadn't made some mistakes, the company would be in much better shape. Mistakes can be fixed. If Palm's woes were caused by their competitors taking away their business, that would be a much worse situation. In a race, if you are losing because you are doing something wrong, you have a chance to fix it and win. If you are losing because the other guy is just faster, it's hopeless. And this isn't a sprint, it's a marathon. There is still time fix things.
Like I said, competition isn't the root cause of Palm's problems. Microsoft announced yesterday with great fanfare the sale of the one millionth Pocket PC device. Whoopee, Palm sold 278 thousand handhelds in March alone, which was considered a slow month for them. NPD Group senior analyst Steve Koenig says, "Historically, almost one in 10 handheld devices is a Pocket PC. It's share is usually below 10%. The Pocket PC universe vs. the Palm universe parallels Apple vs. the PC." The PPC platform may eventually turn out to be serious competition for Palm, but it isn't yet.
A thornier issue is Palm's licensees taking away Palm's business. I still maintain that without Handspring and her sisters, Palm Inc. would be in much worse financial shape. Having multiple companies running the Palm OS gets the whole platform respect from both investors and buyers. Even if the wildly unlikely happened and Palm Inc. did manage to find a way to go under, the Palm OS would survive and be carried on by Handspring, Sony, and the rest. This gives users the confidence they need to make a fairly major purchase.
While we tend to focus on Handspring and Sony, there are a couple of licensees that take away no business from Palm and just keep pumping money to the bottom line. Symbol is the best example of this. Palm had no intention of making ruggedized handhelds for industrial use. But Symbol sells them by the crateful and pays Palm a share for every one. The new licensee Acer is going to be like this.
Let's turn to what Palm can do to fix some of its problems. Actually, I'd like to start off with what Palm isn't going to do. It isn't going to stop licensing its OS. That would kill the company almost immediately, if it were even possible, considering Palm's contractual obligations to the licensees. Investors would dump the stock until Palm was worth less than nothing and Palm's developers would immediately start looking into developing for the PPC.
Palm isn't going to be bought out. When Palm was spun off from 3COM last year, the IRS said the deal was tax-free as long as neither Palm nor 3COM bought or sold more than 50% of Palm's stock for two years. This means that if a company bought Palm, they would have to pay all the taxes for distributing Palm's shares to 3COM shareholders in 2000. In short, the deal would almost certainly be prohibitively expensive.
Palm isn't going to split into two parts, a hardware and an OS company. Palm has wanted to do this for years and it just isn't financially feasible. Licensing the OS doesn't bring in enough cash to support the OS company.
So, what is Palm going to do? For the most part, they have done it already. First and most importantly, they've learned from their mistakes. Michael Mace, Chief Competitive Officer at Palm, said in a discussion board on this site that most of Palm's upper management acknowledges that the m500 was announced too soon. "We thought the production ramp would go faster, and wanted to get the PR boost of announcing at CeBIT. It was a calculated risk we understood at the time, and the calculation was wrong."
They have made more concrete changes, too. They have cut back on their spending, including canceling plans for their swanky new headquarters. They've written off huge amounts of unsalable inventory. They have put the m500 series on store shelves where it can become an asset rather than a liability. While this doesn't seem like much, it is enough that one financial analyst has upgraded the stock to a Strong Buy recommendation this week.
While it is true that Palm is going to run in the red for a while, they have hundreds of millions of dollars in cash as a cushion. The worst that can happen is that Palm will have to look for a cash infusion sometime in late fall. That's assuming that Palm hasn't gotten its act together for six months, which I consider unlikely.
And even if you have no faith in Palm's management, have faith in the Palm platform itself. It still dominates the handheld market the way Microsoft dominates the desktop one. The Palm OS is a 600 hundred pound gorilla and it will be a long time before anyone can make a monkey out of it.
Article Comments(89 comments)
This article is no longer accepting new comments.
Click here for the full story discussion page...
- RE: Palm brand will return in 2018, with devices built by TCL -Tuckermaclain
- RE: Palm brand will return in 2018, with devices built by TCL -hkklife
- The iPhone X reveals why Tim Cook was so mad about Palm -Gekko
- RE: Palm brand will return in 2018, with devices built by TCL -Ryan
- RE: Palm brand will return in 2018, with devices built by TCL -abosco
- RE: Was the Foleo ahead of its time? -wannitnow
- RE: Palm brand will return in 2018, with devices built by TCL -wannitnow
- RE: Palm brand will return in 2018, with devices built by TCL -LiveFaith