Operating system company PalmSource Inc. announced plans to acquire Chinese software vendor China MobileSoft Ltd. in an all-stock transaction valued at around $23 million. PalmSource’s stock fell slightly after its announcement to about $14.15 per share.
Under the terms of the transaction, PalmSource will issue about 1.6 million shares to acquire CMS. The deal is subject to conditions including CMS shareholder approval. PalmSource said it expects to close the deal in February.
PalmSource said the acquisition would give it a foothold in the Chinese market. CMS applications ship in more than 30 phone models, and the company operates a major R&D center and a sales and marketing team in the country. PalmSource also said the move will allow it to sell software to a wide range of phones, not just high-end devices. The company has previously stated its intent to target a wide range of devices.
But perhaps more importantly, PalmSource said the acquisition would give it access to CMS’ Linux technology. The operating system vendor said it plans to continue selling its Palm OS Garnet and Palm OS Cobalt platforms to handset manufacturers, but would also build a version of the Palm OS operating on Linux. PalmSource said the move would combine its large Palm OS development community with the flexibility of Linux. Further, PalmSource said a Linux-based Palm OS would work more closely with Linux-based desktop computers.
Linux has slowly been growing in importance in the mobile-phone industry. Motorola Inc. builds a variety of phones using its own blend of Java and Linux, and a variety of Asian manufacturers have announced major support for the Linux platform. Indeed, Japanese wireless giant NTT DoCoMo Inc. selected Linux and Symbian as its two standard phone platforms. The primary Linux software vendor in the wireless world is MontaVista Software.
However, some have voiced opposition to the Linux platform. Microsoft Corp. officials have commented on possible copyright and patent snarls surrounding Linux, as have Nokia Corp. executives. Both Nokia and Microsoft are selling their own mobile phone OSs.
“This is the next stage in our growth and a major milestone for the mobile-phone industry. We plan to offer the ease of use and flexibility that Palm OS is known for to all mobile phones,” said David Nagel, president and chief executive officer of PalmSource. “We believe the combination of PalmSource, CMS and Linux gives us the technological and market-critical mass to compete with even the biggest proprietary operating system companies.”
PalmSource, spun out of personal digital assistant company PalmOne Inc., has shipped its OS in a total of 36 million PDAs and smart phones. The company counts Aceeca, AlphaSmart, Fossil, Garmin, GSL, Kyocera, Lenovo, PalmOne, QTech, Samsung, Sony, Symbol Technologies and Tapwave as customers.
