Is Palm for sale? Analysts abuzz

Smart phone vendors may be readying for iPhone

Palm, one of the handheld world's pioneers, could be purchased this week by one of four possible buyers, according to published reports citing unnamed sources.

A potential buyer could be seeking a way to compete against the announced iPhone by Apple, since the iPhone is the "most influential force in the market right now," said Craig Mathias, an analyst at Farpoint Group.

"Palm has the brand, distribution channel and a formidable engineering force" to make it important to a buyer, Mathias added.

Representatives for Palm and the four companies said to be interested all declined comment, saying they don't comment on rumors.

Palm is holding a conference call on Thursday to report third-quarter earnings, but a spokeswoman would not say whether Palm is even exploring whether to find a buyer, which has been widely rumored for months.

The four possible buyers, first named first in a story by the Web site Unstrung are Nokia and Motorola, as well as two private equity firms, Texas Pacific Group and Silver Lake Partners. Morgan Stanley is widely regarded by analysts as the financial service company working with Palm on finding a buyer, but officials at that company could not be reached for comment.

Mathias and Ken Dulaney, an analyst at Gartner Inc., could not confirm that any purchase will happen soon but said they have heard rumors about Palm being up for sale for months. Also, both analysts cast serious doubt that any of the four companies named would buy Palm, even though Palm could be attractive for several reasons.

"Neither Motorola nor Nokia seems like a good fit," Mathias said. Motorola sells handhelds with the Windows Mobile OS and Nokia uses the Symbian OS, he noted. "Maybe one would buy Palm and shut it down ... to keep intellectual property out of the hands of competitors."

Dulaney also doubted that Motorola or Nokia would buy Palm. "Moto may have some need, but I have been convinced by sources that Moto is not going to happen," Dulaney said. "Nokia is a very, very different platform. Palm just doesn't fit."

Palm sells several Treo devices running Windows Mobile OS, as well as the Palm OS. In December, Palm announced it was acquiring for US$44 million the Palm OS Garnet source code from Access Systems Americas, formerly PalmSource, in the form of a perpetual license, according to a company statement from Dec. 7.

Dulaney said the investment companies might be brokering some kind of deal since they wouldn't have enough cash themselves to help Palm create a bigger portfolio. "I don't know what the investment partners would do with Palm," he said.

Even though Palm, with its brand and engineering staff, is strong, Dulaney and Mathias said, the future of the Palm OS is limited. "The Palm OS is doomed," Mathias said.

Dulaney said he has been telling his clients in large businesses for 18 months not to develop applications atop the Palm OS after it became clear that the platform would not be widely licensed to hardware makers focused on large business customers. He recommends that customers use the Windows Mobile OS on devices from Palm instead.

Dulaney said a buyer for Palm might be Hewlett-Packard, which is trying to reinvigorate its handheld business, or possibly High Tech Computer.

Despite the disadvantages of the Palm OS, Palm has many assets, Dulaney added. "Palm is profitable, they have a strong U.S. presence, they have a knowledge of software and applications and they understand business," he said.

The rumors of a sale of Palm come at the same time handheld makers are trying to find ways to compete with the upcoming iPhone from Apple, Mathias said. "The smart phone is moving in the direction of the iPhone, which is the most important product announcement this year," Mathias said.

"The iPhone is basically an upmarket multimedia phone which will start at nearly US$600 and then probably go down to US$300 and be backed by the distribution, brand, marketing and image of Steve Jobs and Apple," Mathias said.

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Matt Hamblen

Computerworld

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