Palm battling smart phone competitors
SUNNYVALE, Calif. -- Palm Inc.'s death knell has been rung over and over -- on Wall Street, in headlines, and by a growing number of discontented fans.
Whether on death watch or not, the smart phone pioneer is struggling. Palm has been pummeled by deep-pocketed rivals and maimed by missteps, and it remains shackled to an aging operating system.
The Palm OS has fallen behind others in user-friendly features, and the company's vital signs are taking a hit. Palm said Wednesday it expects to see a loss of 1 cent per share or break even for its fiscal quarter ending Aug. 31.
If the company is to succeed even as a small player in the fast-growing industry, analysts say it will have to act deftly.
"They can hang on for a while longer," Gartner Inc. vice president and analyst Ken Dulaney said. "But they really can't afford many more mistakes."
High profit margins and the growing popularity of phones that are Swiss Army knives of data, voice and Web capabilities have drawn intensifying interest from rivals ranging from phone giants like Nokia and Samsung Electronics, to tech titans like Apple and Hewlett-Packard.
As competitors trotted out sleek new smart phones over the past year, Palm veered little from the once-beloved but now-bulky design of the Treo 600, which debuted in 2003. Others adopted software platforms aimed at today's multimedia multitasking culture, but Palm has been relying mainly on an operating system that has seen only minor revisions over five years.
Officials at the Sunnyvale-based company acknowledge the Palm OS's underlying architecture isn't agile enough. The software, which languished amid ownership switches first from Palm to a spinoff and now to Access Co. Ltd., can't handle voice and data functions simultaneously, thus leaving some users wondering why their Treos, for instance, can't toggle seamlessly between a phone call and video playback.
Palm is building a new operating system based on Linux, but it's a huge undertaking and nobody knows yet how it will stack up.
Palm's profits plunged 43 percent to $15.4 million in its fiscal fourth quarter, which ended June 1, even though it posted record Treo sales of $344.2 million. In comparison, longtime rival Research in Motion Ltd., maker of the BlackBerry, saw income surge 73 percent to $223.2 million for the same period.
In June, Palm laid off about 8 percent of its workforce.
Seeking "a change in dynamics," the company signed a deal in June to sell a 25 percent stake to private equity firm Elevation Partners. An impetus, Palm President and CEO Ed Colligan said, was to get Jon Rubinstein, the former head of Apple's iPod division, to join Palm's ranks.
After the transaction closes, Rubinstein will become Palm's executive chair, and his associates at Elevation -- former Apple chief financial officer Fred Anderson and veteran Silicon Valley investor Roger McNamee -- will become board members.
Palm unveiled last week in Europe a slimmer Treo 500v, its first significant hardware revamp in five years. A similarly thinner model dubbed the Centro is also expected to launch soon in the U.S.