June 4, 2007 2:33 PM PDT

Palm: The new comeback kid?

Palm, which lost its footing in the competitive smart phone market this past year, is turning to private equity and some former Apple execs to help it reinvigorate its product lineup.

But will it be enough?

That's the big question that Wall Street investors and gadget gurus will be looking at over the next 18 to 24 months.

On Monday, Palm said it would sell 25 percent of the company to private equity firm Elevation Partners for $325 million. Elevation Partners was founded by Fred Anderson, Apple's former CFO, and Roger McNamee, who will now sit on Palm's board, replacing Eric Benhamou and D. Scott Mercer. The company also said it would bring on Jon Rubinstein, who formerly ran the iPod division at Apple, as executive chairman of the board.

The deal comes as Palm, which essentially invented the smart phone category with its popular Treo product, tries to regain its position as a leader in an increasingly crowded market. Over the past couple of years, everyone and their brother--from BlackBerry maker Research In Motion to the big handset makers Motorola, Nokia and Samsung--have been introducing so-called smart phones that combine phone functionality with e-mail and Web surfing capability, competing directly against the Treo.

And now Apple's iPhone, which is already generating unprecedented buzz, is only weeks away from launch on AT&T's network.

Meanwhile, Palm has been struggling to keep up with competitors in terms of new features and functionality. In recent months, rumors have floated around Wall Street that the company might be ripe for a takeover, with bigger players such as Motorola and Nokia mentioned as potential suitors.

In the middle of this ultracompetitive market, Palm introduced its latest product, a miniature Linux-based laptop dubbed the Foleo, which has left many experts scratching their heads. The 2.5-pound keyboard and computing device, which is designed to attach to a Treo so people can type more easily, was announced last week, but so far has gotten a lackluster reception.

"The company has been under tremendous pressure to do something," said Tavis McCourt, a managing director at Morgan Keegan & Company. "The company has missed a product cycle, and it's good to change things around to signal to investors that something new is coming."

The Rubinstein effect
The equity investment from Elevation Partners should appease frustrated investors in the short term by helping pay for the one time $9 dollar per share dividend Palm will pay out as part of this arrangement. But the deal will also have longer term strategic benefits. Specifically, the addition of Fred Anderson, Roger McNamee, and Jon Rubinstein should help the company fine-tune its vision and execute more effectively moving forward.

Palm President and CEO Ed Colligan told investors during a conference call Monday that Jon Rubinstein will lead the company's product development. Anderson and McNamee will not likely be involved in day-to-day operations of the company, but their presence on the board will help the company forge new relationships, as well as help ensure a source of future investment capital.

"We think this transaction will reinvigorate our management team and help us attract new talent," Colligan said. "John will focus on helping us turn our product engine. He'll take a leading role in the development of the product organization."

Rubinstein, who helped turn Apple around in the late 1990s by leading development of the iMac and the iPod, appears to be well-suited for the job. He's known throughout the industry as someone who can take a vision and execute on it by building successful products, an approach many believe Palm needs right now. McNamee said he believes Rubinstein's strong execution history will fit well with Palm's founder Jeff Hawkins.

"We are intensely attracted to the idea of teaming Jon with Jeff Hawkins," he said. "We feel like that is a team that can't be beat."

But analysts say Rubinstein's presence on the management team doesn't necessarily mean a slam dunk for Palm.

"Rubinstein is a good addition for them," said Charles Golvin, an analyst with Forrester Research. "And there is a lot of potential for success. But the cell phone market is not the MP3 market. Palm is not creating a new category. It needs to evolve the market. So there are a whole set of other challenges associated with that."

CONTINUED: Competing for consumers…
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5 comments

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Palm invented smartphone?
Although Palm did buy Handspring, in my opinion, it was Handspring who invented the smartphone when they made the VisorPhone attachment for the Visor PDAs. I'm still using mine on my Prism, and regret the day I'll have to give it up when all cell phone transmissions go digital. The main reason is text messaging - I hate playing "thumb piano" and the Treo does not support Graffiti.
Posted by xarophti (428 comments )
Reply Link Flag
How to predict palm
If the future was startrek and you ask jordy or dr crusher if there was a place for palm right now they'ed tell you it nearly made it before others to being a triquarter.
When we do go to the stars if we make it(one does wonder at the moment) Its not going to be in some tin can trying to warp its way trough space (year what folds, i can swim faster than that with some space swimming gear). Anyway enough about sci-fi whats actually the most important factors here is how we go through the next 10 years really.

1) the midway market (how well and diverse will it develop) also (to simply make consumer communications and send office documents is going to be very competitive).

2) The way in which developers adopt linux or other os'es as to how they make use of technological improvements.

3) How well groups like Palm can capture the bread and butter markets and expand into professions alonside utilisation of technological developments.

So anyway where will this go thats the question.
Ok Palm can be developed on quite well and there are a lot of linux developers.

The mid-market both professional and simply lifestyle are heavly competed for and the most pratical aren't always used yet but however the market is moving from a toddler to a child/teenager market where binarary computing is concerned so there should be more need to make use of flexable development platforms how ever there are sharks in there.

Anyway on the bases of these factors i would say the future of how well palm does depends on how they go round the sharks and how they perform in this capatilisation alonside good marketing.

Its a tough one but if palm does well it could diversify the market for many professionals and offer them somthing beyond a toy.

So the real question you would want to ask is how well can palm bounce back from shark knocks and in an undetered help the mid range (builders, scientists, Government reseachers, and if their lucky doctors(mind you if palm can invergorate the bulder trade it would get some top business that isn't there yet).
It's all down to market transformation which takes devotion and loads of people msunderstanding things, not triangles but at the same time as making true progress, making money is important to which palm will not be alone nor will evnvitably do the best(i can't see any dong that from track records) but they might do quite well and grow out.
Is communications just entertainment thats what you've gotta ask and is palm ready for that or will they be able to capitalise the current bread and butter(pen pushes who want their childeren to do better and doctors/consultent things wasting money).

So put simply how usful will this be and if they get ahead of the game will sharks and idiots knock them out looking at impraticle things because they looked nice yesterday.
If it were a full on adult market i would say yes we could all develope using such things but as i said earlier its cmmoing from toddler stage and som groups with big influences don't even want it to be as open/developing as it's is so far.
Adverage I'Q or other mesurements of intelligence 101 (climbing and under attack) whats your guess?
Is it all trully down to how good things are or do other hands play.
Whats this this ratio look like compeared to 5 years ago
despritism:optimism:actual development:sustainability:stupidity

Bleach is still used when making medications is it not.
Plus you should eat a bit of everything(wow talk about a cop out)
walmart sells not one thing that does not have sacrifice (not one).
Macdonalds uses more radish or somthing.
Whats news.corp all about talk about opinionation with no real content.

Year so anyway toddler to child.
Posted by wildchild_plasma_gyro (296 comments )
Reply Link Flag
Do you pray to god (maybe you should start)
Ok so your asking builders and they've got different storyies about mistakes made that palm could solve.
So many you may be able to see somthing that could have potential.
Unfortunitly the people you want to talk to a are the quite ones who were perfecting the arcs and curves owee and angles.
Their the root to an edge.
There friends who designed the building want them to have the perfect tools for triangualating all possibilities with the possibility of being able to do things they could not before.
Amongst that there is the potential for the big one.
what you want is endorsment from big FM so that he dreams his workers are even more perfect.
So that the world he rules/owns (year he owns everything accept some stuff i've got and some buddist technologies inc all microsofts efforts so far) can support follow FMs wanting perfect more perfect.
This guy is the sort of person who recons he'll gobble microsoft into oblivion one day and they'll never work out it was him (and he probably will).
Thats the kind of man you want to impress and show how such a gadget can be used and developed for his perfection of a world. Making sure you consider his interests first. This could give you access to the coolest stuff that would allow you to develop the perfect tools to better the craft to make his buildings more perfect.
It's not a bad life and beat board rooms pissing you off so much.
Thats what i reckon anyway portable computing is ideal for developing as a new tool for the building trade as somthing for somone perfect.

Ofcourse i'm not mr perfect i hate perfect it kind of kills all those imperfect things that don't tend to make themselves above art.
Not to mention the guys don't tend to solve science properply calling stuff caos when i can prove theres no such thing.
Anyway primitive as he may be you palm is his because it is primitive of his and to benefit his perfection with some of his perfection is good for you.
If you ask me i hate good(to many missing bits and crap languages) but you go ahead.
Sorry i'm probably speaking nonsense there no such thing as perfect is there.
Posted by wildchild_plasma_gyro (296 comments )
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Maybe the New Guy Will Listen
To install the Palm Pilot, it requires that the specific user must have admin rights. Very few large organizations give admin rights to anyone, ever. I'm tech support for a large school system with 35,000 PC's. We have hundreds of Palm Pilots gathering dust because business teachers can't install the software to teach with or use. There is not a version where students can sign on and practice using a PDA. Palm PDA's will go the way of Lotus 123 that was so protected that nobody would buy it. Maybe the new guy will listen since the current people at Palm won't. Yes, there is a technical solution to the problem, but it is out of reach of most users with zero clout with network administrators.
Posted by gregmclarke (1 comment )
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"Huge potential for Palm to innovate around its software"
There's been a huge potential form Palm to innovate for years, something which they've completely ignored. Palm hasn't done anything exciting in hardware OR software since the Tungsten was first released, like 5 years ago (note that the Treo was Handspring's product). They are confident that they can forever keep shipping incremental improvements on existing devices without giving the consumer anything new. They have essentially the same sad set of PIM applications that debuted with the first PalmPilot, and from a user standpoint, precious little has changed with their OS since then, besides the continual degredation of its vaunted stability. It's been amazing how Palm has managed to burn so much good will in such a short time.

As for the Foleo, it has potential, but once again, Palm has hamstrung itself by skimping on the hardware. I applaud them for FINALLY including WiFi in a product, but this thing needs multimedia features built-in. Right now, the Foleo could be their wildcard, but they absolutely need to make it a more exciting product. For example, it absolutely needs at least an add-on that will allow it to play DVDs. They are counting on developer community to bail them out, like it did in the days of OS 3, but those days are gone. Nowadays, people expect a product to be great out-of-box. The Foleo, as it's currently spec'ed, has NONE of the flair that iPhone has used to generate so much buzz. Right now, it's just yet another confirmation that Palm has completely lost touch with the market.

Although extremely disgruntled, a small (and completely irrational) part of me is still charmed by the product I fell in love with years ago, the Palm IIIxe, and wants Palm to pull this comeback off. But I'm not holding my breath...
Posted by acjohnson55 (9 comments )
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