This post was updated at 1:06 p.m. PST with the stock's closing price and comments from an interview with Elevation Partners Roger McNamee.
Christmas came early for Palm.
(Credit:
Palm)
The struggling handset maker announced Monday that investor Elevation Partners has agreed to infuse Palm with an additional $100 million, in a move designed to provide a boost to its new product launches in 2009.
Shares of Palm soared on the announcement, rising as high as 49 percent in intraday trading Monday to $3.71 a share. And by the time the regular session ended, Palm finished the day up 22.5 percent to close at $3.05 a share.
Such news is brighter than Palm's Christmas season of 2007, when the company announced a $30 million revenue shortfall in its fiscal second quarter after canceling its lightweight Linux computer, the Foleo.
And for Palm, even better still is that Elevation Partners is willing to provide it with financial support despite the 2007 product cancellation, which in this current economic firestorm is an enviable shield.
Said Palm Chief Executive Ed Colligan in a statement:
The additional capital from Elevation Partners will enable us to put added momentum behind the new product introductions scheduled for 2009 and will provide us with enhanced stability in unsettled economic times.
Palm could be gearing up to release a new operating system, code-named Nova, with its mobile computing product line in the New Year.
In June 2007, Elevation Partners announced a $325 million investment in Palm that gave it a 25 percent stake in the company. With the investment announced Monday, Elevation will receive up to a 38 percent stake, if it doesn't sell a portion of its holdings to a third party.
Under the agreement, Elevation will receive newly issued preferred stock that will convert to common stock at $3.25 a share. That's a 31 percent premium over Palm's closing price on Friday.
The agreement, which is expected to close by January 31, also allows Palm to require Elevation to sell up to 49 percent of its $100 million investment to other investors at the same terms paid by Elevation, or under better terms, by March 31.
Proceeds from that sale would go to Palm.
"(Palm) management asked us to do it this way, because they realized this deal would be dilutive to existing investors and they wanted to give them a chance to participate at the same level we did," said Roger McNamee, Elevation Partners co-founder.
The private equity firm did not seek other investors to participate in the $100 million investment and McNamee said he doesn't know whether the company sought out other participants on its own.
But once the deal closes, Palm will have two months to find other investors to buy out a portion of Elevation's investment.
The private equity firm will also receive warrants to acquire 7 million shares of Palm's common stock at the same price.
For Palm, Elevation's investment announcement comes on the heels of its fiscal second-quarter results earlier this month, in which the handheld device maker announced revenue dropped 45.2 percent to $191.6 million over the same period last year.
As part of its second-quarter announcement, Colligan said in a statement:
We're working through an undeniably difficult period, but near-term challenges shouldn't overshadow the fact that we are on track to deliver a breakthrough new platform and products that will bring a truly differentiated smartphone experience to our customers and re-establish Palm as a leading innovator in the mobile industry.
McNamee said he believes very much in Palm's potential for success but that Wall Street assumes the smartphone category is all about Apple's iPhone and Research In Motion's Blackberry.
"Palm has an interesting alternative to the BlackBerry and Apple," McNamee said, pointing to Palm's upcoming appearance at the Consumer Electronics Show next month, where it's anticipated to debut its Nova.
Microsoft's John O'Rourke, Symbian's Jerry Panagrossi, Adobe's Gary Kovacs, and Qualcomm's Jason Kenagy (left to right) debate the future of mobile computing for the umpteenth time.
(Credit: Tom Krazit/CNET News)The mobile industry is still jostling for position ahead of an eventual industry shakeout.
Over the past year, I've been to a dozen or so mobile computing conferences such as GigaOm's Mobilize Conference held Thursday in San Francisco. And little has changed: dozens of participants--phone makers, software developers, and wireless carriers--have little doubt they are on the cusp of creating the future of personal computing, but have widely different ideas as to how to make that future happen.
Attendees might have been better served wandering over to a different part of the University of California at San Francisco's Mission Bay campus to watch how students are actually using current forms of mobile technology, rather than listening to the same experts debate the same topics endlessly. These folks were mostly looking for ways to capitalize on what they already know: that the immense number of people who are already using mobile phones, combined with advances in processing power, broadband wireless networks, and intuitive user interface designs, has the potential to connect humanity in a shift even more revolutionary than the dawn of the World Wide Web 13 or so years ago.
But if they are trying to make business decisions about how to proceed, they found little consensus Thursday as to which path they should take.
Makers of specialized devices, like Amazon's Kindle, advocated a simple, get-one-thing-right approach. Others touted convergence. Operating system vendors of all stripes, including Rich Miner of Google, urged developers to adopt the technology that's best for their application but warned of the perils of following the wrong path. Location-aware businesses emphasized the importance of location-aware technologies.
I suppose that's nothing new: businesses exist to promote their business, after all. And to some degree, all of these companies are right: the future of mobile computing is going to be about a combination of all the things we need to do while we're connected to the Internet and the specialized things that are important to you or me.
The issue left unstated during the early part of Thursday's conference was that some of these ideas will become tomorrow's Internet appliance makers or Web portals: there are just too many companies trying to do the same thing in this market. The world simply doesn't need seven mobile operating systems.
Sure, it's better to have choices rather than letting one company dominate the scene for 30 years like we've seen with the PC, but a shakeout is coming. And the two companies with the best grasp of the North American smartphone user as of the moment--Apple and Research in Motion--were barely represented before attendees. (Apple never goes to these things.)
Perhaps by the time next year's conference arrives we'll be able to do a post-mortem on the nascent mobile computing industry, and have a better sense of what works and what doesn't. The mass market for smart connected devices is just about to take off, and when the plane reaches cruising altitude more than one high-profile speaker at Mobilize will be still be reciting today's talking points on the ground below.
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