Time is right for Palm sale, analyst says

Palm is still profitable but it can't thrive in the long run, according to a noted industry analyst

Rumors circulated late last week on Wall Street that Palm was putting itself up for sale, which one industry analyst said would be a good idea.

"I think it would be a good thing if they were purchased," said Gartner analyst Ken Dulaney. "They're doing well now, but they need more capital to do the things they need to do."

The rumors late last week drove up the price of Palm stock. Palm spokeswoman Marlene Somsak said late Monday that the company does not comment on rumors and speculation. "There's new ones every day," she said.

Dulaney said he had no direct knowledge that, as several news stories indicated, Palm was preparing itself for sale. He did say, however, that Palm investors told another Gartner analyst of the preparations.

"The rumor that [Palm] is in play came from investors," Dulaney said. Whether the stories are true, Dulaney said that Palm, which is currently profitable, can't keep up its profitability over the long haul, particularly with its popular Treo line of smart phones starting to show its age.

"Today, the big guys can do new [phone] models every six months," Dulaney said. "Palm just can't do that. The Treo has been out there far too long. Its electronics have been upgraded, but it's just too thick."

Dulaney was referring to the trend toward ever-thinner and smaller smart phones, such as the Motorola Q, Samsung's BlackJack and Research In Motion's Pearl. Even RIM's long-popular BlackBerry line aimed at business users received an overhaul recently with release of the thinner, smaller BlackBerry 8800.

But while a sale of Palm makes sense, finding a buyer might be difficult, Dulaney said.

"It wouldn't be Nokia or Motorola," he said. "Nokia wouldn't make sense because there's no common OS platform, and I don't think Motorola is interested since they already have Windows platform devices. RIM doesn't make sense because they're very confident in what they already have, although it would give RIM entry into Windows Mobile, which would increase their sales."

Besides some Asian phone vendors, that leaves large computer vendors as potential purchasers, Dulaney said. One candidate would be Hewlett-Packard, which recently introduced a smart phone, the iPaq 510 Voice Messenger, which will be based on the Windows Mobile 6 platform.

"Their shares are down, and the Messenger product is a weak effort," Dulaney said. "It would be natural for them to pick up Palm."

Other potential candidates include Dell and Apple, but Dulaney dismissed the first possibility, saying, "Dell has too many problems now."

Apple might benefit from acquiring Palm, he said. "What they'd get from Palm is carrier knowledge. But they'd have to pick up a whole OS." By that, he said he meant that Apple is getting into the phone business with its much-ballyhooed iPhone, based on Apple's OS X, but some believe that the mobile phone business presents complications that Apple may not have considered. Also, Palm's Windows Mobile Treos would not necessarily be a good addition, given Apple's culture and traditional antipathy to Microsoft's platform.

In any case, Dulaney said that now was a good time for Palm to be looking for a buyer.

"It would be a good thing," he said. "They're profitable and there are some positive things there that won't be positive for all that long."

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