Palm Buying Mobile Infrastructure Developer

Palm, Inc. has agreed to buy Extended Systems Inc., a company that produces software and systems tp hook mobile workers into corporate networks, allowing them access company databases and files, use network resources such as printers, and synchronise their contact and agenda data. They also develop Bluetooth- and Infrared-enabling software to let mobile devices communicate with corporate systems.

This deal will make Palm a company that can sell both handhelds and Enterprise-level infrastructure software. Their comprehensive, behind-the-firewall solution supports groupware and business applications -- improving overall organizational productivity and controlling costs.

Extended Systems is also able to support multiple operating systems, including Palm OS, Pocket PC, Windows CE, EPOC, and RIM.

In a related move to sharpen customer focus, Palm created three strategic business groups -- the Enterprise Solutions Group, the Individual Solutions Group, and the Platform Solutions Group. Extended Systems' roughly 350 employees will form the core of the Enterprise Solutions Group with the company's former CEO at its head.

"Palm intends to be as popular with CIOs as it is with individuals," said Carl Yankowski, Palm's chief executive officer. "Palm will be unmatched in its ability to deliver information to individual users and large organizations using a Palm solution or any mobile operating system or handheld device."

"Extended Systems and Palm share a vision and have complementary products and culture. Together we significantly strengthen our ability to serve the needs of the explosive enterprise market," said Extended Systems CEO, Steve Simpson. "This move is a natural evolution as we join to create one end-to-end solution from a single vendor. It's a win-win for customers, employees and stockholders."

This move is considered by some analysts to be a threat to Research in Motion, which makes the BlackBerry pagers. RIM is focused mainly on the business market and is considered the market leader, while Palm has had its greatest success with consumers. Palm is actively seeking to make greater inroads in the enterprise market.

"This is going to put the heat on RIM, telling them, 'you can't rest on your laurels and you need to do something that extends your leadership,'" explains Sam May, an analyst with U.S. Bancorp Piper Jaffray.

Extended Systems' stockholders will receive shares of Palm valued at $22 per Extended Systems' share. The transaction values Extended Systems at approximately $264 million. The transaction is expected to close in June.

Judy Bruner, Palm's Chief Financial Officer, said that the deal will cut Palm's operating earnings by $15 million in the fiscal year that begins in June. Some of that will come because Palm plans to sell off Extended Systems' printing and Internet hardware businesses, which accounted for 54% of the company's $13.8 million revenue last quarter.

Related Story:

• Palm's Push into the Enterprise

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