March 21, 2007 12:25 PM PDT

It's crunch time for Palm

Palm pioneered the smart phone, but if rumors prove true, the Treo maker may not survive as an independent company to watch its creation move from the corner office to the street corner.

The Sunnyvale, Calif., company in recent weeks has been the subject of increasingly noisy takeover talk, with everyone from private equity firms like Silver Lake Partners and Texas Pacific Group to handset makers like Nokia and Motorola purportedly interested.

Those rumors say a deal could be announced as early as Thursday, the same day Palm is scheduled to announce the results for its most recent quarter.

While it's hardly expanding at Google-like rates, Palm is still, in fact, growing. The company is expected by most analysts to beat the modestly disappointing guidance it issued last quarter after its latest model, the Treo 750, was delayed. Palm expects revenue of $400 million to $410 million in the quarter that just ended, up from $389 million in same quarter a year ago.

Meanwhile, Palm managed to push more Treo smart phones out the door in the last quarter of the 2006 calendar year than any other quarter. In 2005, Palm shipped 2 million Treos worldwide, and in 2006 that number climbed to 2.4 million, a 20 percent increase. The major U.S. mobile carriers continue to stock both the Palm OS and Windows Mobile versions of the Treo. Its carriers bought 617,000 Treos in the last quarter of 2006, a record, and a 42 percent jump over the previous year.

"In a fast-moving industry like this where we've moved to thinner and cheaper devices...the Treo is looking fat, heavy and expensive."
--Todd Kort, Gartner analyst

That sounds good until you add some context: the smart phone market grew 50 percent in the same time period, to 73.9 million units, according to Gartner, and Palm now has a meager 3.2 percent share of the market.

Why the disconnect? Some say it's because the Treo has become tragically unhip.

"The problem is that the Palm product is relatively old, the design has not changed substantially since September 2003 with the Treo 600," said Todd Kort, analyst with Gartner. "But that's a bad thing in a fast-moving industry like this where we've moved to thinner and cheaper devices. The Treo is looking fat, heavy and expensive."

The clock is ticking for Palm, Kort said.

"Things could still go reasonably well for Palm for another six months or so, but I think longer term, the hardware problems, the operating system problems are going to catch up with them," he said. "That's why it makes sense for Palm to be shopping themselves around now before thing go down the tubes."

Old rumors, new details
Though Palm has been a regular target for takeover speculation, the latest round of rumors have an unusual amount of detail. In February, Palm was reportedly seeking a suitor. Then came a report in The Wall Street Journal two weeks ago that said the company had retained Morgan Stanley to look into a potential merger or buyout. On Monday, the technology blog Unstrung, citing unnamed sources, claimed a deal is in the offing and that Morgan Stanley preferred to close a deal by Thursday, the day of the company's quarterly conference call with investors.

Not surprisingly, Palm isn't talking. "We try to make it a practice and policy not to comment on rumors and speculation," said Palm spokeswoman Marlene Somsak.

Getting bought out by a hardware manufacturer could mean the Treo would get branded under that manufacturer's name. And the Palm OS--which has been stalled at version 5.4.9--could be switched out for another platform, like Symbian, if Nokia were to make the purchase, in order to avoid having to invest in two different operating systems.

CONTINUED: Value in Palm OS…
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4 comments

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Sexy is all well and good
But, for many of us, functionality matters more.

I've been a long time PalmOS user: IIIx -> Visor Deluxe -> Clie NZ-90 -> Treo 650 -> Treo 680. The Treo 650 was the first smartphone that pulled me away from the pure PDA. After using the NZ-90 with the Hi-Res+ (320x480) color screen, I just couldn't go to something like the Treo 600 or Kyocera 7135 with the old 160x160 screens. I used to use my NZ-90 with a BlueTooth phone for connectivity. I even changed cell carriers, from Verizon to (then) AT&T Wireless because Verizon didn't have any BlueTooth phones at the time and kept lying to me about when they'd have them.

I was very happy with my Treo 650. I'm a Director of IT Operations and I used it *constantly* for email (Chatter Email is my preference), and the screen size and resolution, plus the very usable keyboard, makes a huge difference. I also keep up with the news (via AvantGo), and have other tools such as SSH (pssh), etc, which makes it a powerful tool. And, of course, all the standard PDA tasks of calendar & contacts, synced with Exchange/Outlook in the office. I just recently (last month) bumped up to the 680 to get the increased internal memory and slightly sleeker body. So far, it is a worthy successor to my 650 (which I still have, as a backup).

At work we have a number of different smartphones that I've worked with - a couple of Motorola Qs, a few various Blackberry models, a Nokia 9300, some Sony-Ericsson phones (I forget the models), etc. We're doing some work in the mobile market, so we have different phones to test with, as well as phones used by the company for daily business, and executives who have them and have IT (usually me, since I'm the smartphone geek) configure them for email, etc.

So I've played with all of them, and others like the Treo 700w, and none of them have made me want to give up my Treo. WinMob6 may help with some issues - such as the 240x240 screen limitation - that was a killer for me, I won't go lower than 320x320 - MAYBE I could be convinced on 320x240, but probably not - and I'd prefer to see something 320x480 or larger. I do think the Q is sexy - but I found the lack of a touch screen to be a show-stopper. One-handed navigation on WinMob just isn't good enough, and even though it is great on my PalmOS Treo, I use the screen a lot because it is so much faster to just hit something with the stylus (or just my finger/thumb) than to use the 5-way to get to it.

The only phone that tempted me was the Nokia 9300 - the clamshell design with the large keyboard and wide screen is nice. But I found the OS to be far too frustrating when configuring things like email for secure IMAP and SMTP, and it isn't as flexible as PalmOS with application options.

Sure, there are sleeker phones out there. I had the initial digital StarTac (got it the day Verizon released it). I had a T68i and T606 through AT&T/Cingular before the 650. But, until we get a really usable roll-up screen, you can't have your cake and eat it too - you can have a small, sleek phone OR a usable, large, hi-res screen and keyboard.

If you really use the phone for email, documents, etc - potentially in lieu of a laptop - then you don't want to deal with 176x176 screens and T9 text input, etc.

Designs like the new Samsung SCH-u740 are nice and sexy, but it is too limited for real work.

For people looking for a 'smartphone' just to use for email now and then, but mainly for SMS, maybe checking the web for showtimes, etc, there are many options. But there aren't many options that really offer the features and capabilities, and usability, of the Treo. It may not be the sleekest phone out there, but it can't be much smaller without sacrificing something - smaller screen, tighter (and harder to use) keyboard, etc. In fact, the one real complaint I have about the 680 compared to the 650 is that, to make it slimmer and lighter, they've used a battery with about half the capacity. Now, while I used to be able to forget to charge my 650 and still use it the next day, I've actually had my 680 die before the end of a busy day. So I'm looking at buying one of the 3rd party extended-life batteries - which come with an extended cover that just restores it to 650-ish size.

The RAZR, Q, etc, are all nice phones - but they can't replace my Treo.
Posted by megazone (138 comments )
Reply Link Flag
Funny...
Mr. Kort must have missed the fact that virtually every publication that has reviewed smartphones has ranked the 700p and 700w as the best in class. While it may not be "thinner and cheaper," it is certainly one of the easiset to use, most flexible and functional devices in the smartphone class. As an owner of the 700p, I agree with the trade publication reviews and believe that Kort doesn't know what he's talking about. Thin is not the only criteria for choosing a phone.
Posted by wfseube (22 comments )
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Palm is one of two in the enterprise
I agree with the other two people who commented on this story... Palm is excellent at doing what it does best: Productivity on the go. There is only one competitor out there that does this well also, which is the RIM Blackberry. Not the Pearl version, the full blown one. Either device can very easily work for documents, email, phone, contacts, calendar, etc. while on the go, and sync it when you get back to your office. Sure, it?s not that sexy, slim, or even "cool". But the people that care about the productivity, that need and want the features available on either the Treo or the Blackberry, are not the everyday consumer. The enterprise is what needs these tools, and they won't compromise the tools for sleeker, slimmer design.
Average consumers are looking for the "cool" factor, and they're getting it in the form of all those other phones named in the article. It's a different audience, and a different market, and we should not combine them together, and say Palm is about to fail. It's not, as a matter of fact, Palm is hot commodity. And that's why there are rumors of a takeover, because Palm is got it right.
Posted by chrisbeks (1 comment )
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Palm both good and bad
I am just like the guy who replied earlier, an IT Director, and a
long-time Palm owner with various other technologies mixed in.
I agree Palm has the right blend of features and I'm happy with
my Palm 700p. The one bad thing about Palm though is they
really are slow-moving. Their design does improve but very
slowly. And the OS is essentially the same as it was ten years
ago, and that's really where it is a little embarrassing. Palm's
strength over RIM products used to be its ability to run all kinds
of other apps, but RIM now has other apps, and development of
new Palm applications by third parties is dismal. I am
disappointed that it's 2007 and aside from the smartphone and
keyboard inputs and screen size, which are all great but
somewhat linear improvements, my Palm experience is pretty
much identical to what it was in the mid-nineties.
Posted by Lucky Lou (88 comments )
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