Last week’s unexpected exit of PalmSource Inc.’s chief executive officer was counterbalanced by the company’s new deals with PalmOne Inc., valued around $187 million. However, PalmSource’s future is still unclear at best, and some industry analysts believe its long-term viability is now suspect.
“The long-term future of PalmSource is in question,” said Brad Akyuz, a mobile-phone analyst with research and consulting firm Current Analysis.
PalmSource’s chief executive David Nagel stepped down from his position without explanation May 22. PalmSource said Patrick McVeigh, currently the company’s senior vice president for worldwide licensing, will serve as interim CEO. The company’s board of directors said it has initiated a search for a permanent successor. Interestingly, the company said Nagel will remain at PalmSource in an advisory role through mid-July.
“All I can say is that he stepped down,” said a PalmSource spokeswoman.
“I want to thank Dave for playing an instrumental role in helping position PalmSource to be a major player in the worldwide mobile software market,” said Jean-Louis Gassee, chairman of the PalmSource board of directors. “We appreciate that Dave is staying on to ensure a smooth transition and wish him the best in his future ventures.”
Nagel was named CEO in December 2001.
Just days after Nagel’s departure, PalmSource announced a major series of deals with Treo maker PalmOne.
First, PalmOne announced it renewed its license for the Palm operating system through 2009 in a deal valued at an estimated $148.5 million. Separately, PalmOne said it will purchase PalmSource’s 55-percent share in the Palm trademark for $30 million, which it will pay over three-and-a-half years. The companies split ownership of the logo when they separated in 2003.
PalmOne said it will change its name back to Palm Inc. later this year, and its new devices will feature the Palm logo instead of PalmOne. PalmSource said it plans to introduce a new brand identity within two years. Palm OS licensees like Garmin, Symbol and others will be able to use the Palm logo for four more years.
“The letters P-A-L-M reflect a prized brand with significant customer awareness and earned loyalty,” said Ed Colligan, PalmOne’s president and CEO. “Innovation, power, ease of use, and elegance all are attributes of the brand, and we intend to invest to turn what is a strong name today into a household word synonymous with leadership in mobile computing.”
The news highlights a number of issues for both companies. For PalmOne, industry observers said its renewed commitment to the Palm OS still leaves open the possibility that PalmOne will build devices using another operating system like Microsoft Corp.’s Windows Mobile. Although PalmOne has been battling Microsoft’s advances into the handheld computer market, industry watchers believe it eventually could join with Microsoft to further its own device sales. Although popular with users, the Palm operating system largely has failed to score traction among corporate information technology managers. Windows Mobile has found favor due to its similarities with the desktop version of Windows.
“To consumers, a Palm has always been a Palm even if it was made by PalmOne,” said Tony Cripps, an analyst with research and consulting firm Ovum. “In this new-world view, a Palm can still be a Palm, even if it runs Microsoft software.”
For PalmSource, the news further clouds its future. The company almost exclusively relies on PalmOne for sales of its operating system. PalmSource’s second-largest customer, Sony Corp., recently exited the personal digital assistant market. Further, PalmSource has failed to sign significant new smart-phone licensees. Indeed, Samsung Electronics Co. Ltd. appears to be favoring the Windows Mobile platform over the Palm OS for its high-end wireless gadgets.
“PalmSource-and the `Palm economy’ of Palm OS developers-has become increasingly focused on its former sibling for its own future, especially since Sony decided to back away from PDA manufacturing,” said Ovum’s Cripps.
Palm OS shipments have declined during the past year while its competitors have made significant gains, according to numbers from research and consulting firm Canalys. The firm found PalmSource controlled about 10.5 percent of the smart device market in the first quarter, while Microsoft commanded 18.3 percent and Symbian scored 61.4 percent. Canalys counts handhelds, wireless handhelds and smart phones in its numbers. Further, PalmSource’s stock has dropped from its opening price of $40 per share in 2003 to around $10 per share last week.
PalmSource’s struggles have led some to predict PalmOne ultimately will acquire the company, thereby returning the companies to their original corporate makeup. If PalmOne were to acquire PalmSource, it could save on what it’s paying PalmSource to license the company’s operating system.
PalmSource in January acquired China MobileSoft Technologies Ltd. in a bid to score more sales and expand its market targets beyond high-end devices. The company has also indicated it will use Linux technology in future versions of its platform, a move that would tap into the large base of Linux developers.
“We’ll just have to wait and see” if PalmSource is successful with its new business efforts, said Current Analysis’ Akyuz.
