Opinion: Palm Is Not Going to Fail

Yes, you read that right, Palm Inc. is not going to fail. True, they are going through a rough time right now but their current difficulties are not enough to bring the company down. So if you've been holding off buying a new handheld because you've been waiting to see if Palm would be around next year, I can assure you that it will.

Palm has gotten a lot of negative press lately but I wouldn't take it to heart. When a company shows signs of weakness, that company becomes News. I'm not sure why bad news is more interesting than good news but it's true. Just about anything negative that a reporter can dig up on a troubled company gets printed. Reporters have a lot in common with sharks. They can get into a feeding frenzy. When a reporter sees other publications running negative stories about a company, they think they should be running one, too. And readers tend to think that what gets printed must be important or they wouldn't print it, right? This isn't necessarily so.

Many of these news reports aren't giving you a correct picture of Palm's financial state. While it is true that Palm sales are no longer growing 100% every year, UBS Warburg estimates that Palm's sales will grow a respectable 20% this year. To hear some reporters talk, you'd think no one had bought a Palm since December.

Which isn't to say that Palm doesn't have some real problems. I'm not the first person to say that Palm's roll-out of the m500 series was probably the worst product release in history, with the possible exception of Osborn Computer's company-destroying blunder. They pre-announced the m500's and killed most of the demand for their current high-end product, the Vx. Then the m500's release was delayed, slowing sales for an entire quarter.

This was going on at a time when the entire U.S. economy was slowing, reducing demand for handhelds in general. Last fall, Palm made some deals with parts manufacturers to keep them supplied with the components they needed to build their handhelds. Makes sense, right? Unfortunately, in order to guarantee a steady supply, Palm agreed to buy a large number of components. This seemed to make sense at the time. Demand for Palm's handhelds was doubling every year. No one saw that the market might change and demand slow. So Palm got saddled with a lot of components they can't sell.

Not a pretty situation but I'd like to point something out that I think of as positive: just about all of this is self-inflicted. If Palm 's management team hadn't made some mistakes, the company would be in much better shape. Mistakes can be fixed. If Palm's woes were caused by their competitors taking away their business, that would be a much worse situation. In a race, if you are losing because you are doing something wrong, you have a chance to fix it and win. If you are losing because the other guy is just faster, it's hopeless. And this isn't a sprint, it's a marathon. There is still time fix things.

Like I said, competition isn't the root cause of Palm's problems. Microsoft announced yesterday with great fanfare the sale of the one millionth Pocket PC device. Whoopee, Palm sold 278 thousand handhelds in March alone, which was considered a slow month for them. NPD Group senior analyst Steve Koenig says, "Historically, almost one in 10 handheld devices is a Pocket PC. It's share is usually below 10%. The Pocket PC universe vs. the Palm universe parallels Apple vs. the PC." The PPC platform may eventually turn out to be serious competition for Palm, but it isn't yet.

A thornier issue is Palm's licensees taking away Palm's business. I still maintain that without Handspring and her sisters, Palm Inc. would be in much worse financial shape. Having multiple companies running the Palm OS gets the whole platform respect from both investors and buyers. Even if the wildly unlikely happened and Palm Inc. did manage to find a way to go under, the Palm OS would survive and be carried on by Handspring, Sony, and the rest. This gives users the confidence they need to make a fairly major purchase.

While we tend to focus on Handspring and Sony, there are a couple of licensees that take away no business from Palm and just keep pumping money to the bottom line. Symbol is the best example of this. Palm had no intention of making ruggedized handhelds for industrial use. But Symbol sells them by the crateful and pays Palm a share for every one. The new licensee Acer is going to be like this.

Let's turn to what Palm can do to fix some of its problems. Actually, I'd like to start off with what Palm isn't going to do. It isn't going to stop licensing its OS. That would kill the company almost immediately, if it were even possible, considering Palm's contractual obligations to the licensees. Investors would dump the stock until Palm was worth less than nothing and Palm's developers would immediately start looking into developing for the PPC.

Palm isn't going to be bought out. When Palm was spun off from 3COM last year, the IRS said the deal was tax-free as long as neither Palm nor 3COM bought or sold more than 50% of Palm's stock for two years. This means that if a company bought Palm, they would have to pay all the taxes for distributing Palm's shares to 3COM shareholders in 2000. In short, the deal would almost certainly be prohibitively expensive.

Palm isn't going to split into two parts, a hardware and an OS company. Palm has wanted to do this for years and it just isn't financially feasible. Licensing the OS doesn't bring in enough cash to support the OS company.

So, what is Palm going to do? For the most part, they have done it already. First and most importantly, they've learned from their mistakes. Michael Mace, Chief Competitive Officer at Palm, said in a discussion board on this site that most of Palm's upper management acknowledges that the m500 was announced too soon. "We thought the production ramp would go faster, and wanted to get the PR boost of announcing at CeBIT. It was a calculated risk we understood at the time, and the calculation was wrong."

They have made more concrete changes, too. They have cut back on their spending, including canceling plans for their swanky new headquarters. They've written off huge amounts of unsalable inventory. They have put the m500 series on store shelves where it can become an asset rather than a liability. While this doesn't seem like much, it is enough that one financial analyst has upgraded the stock to a Strong Buy recommendation this week.

While it is true that Palm is going to run in the red for a while, they have hundreds of millions of dollars in cash as a cushion. The worst that can happen is that Palm will have to look for a cash infusion sometime in late fall. That's assuming that Palm hasn't gotten its act together for six months, which I consider unlikely.

And even if you have no faith in Palm's management, have faith in the Palm platform itself. It still dominates the handheld market the way Microsoft dominates the desktop one. The Palm OS is a 600 hundred pound gorilla and it will be a long time before anyone can make a monkey out of it.

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I agree

I.M. Anonymous @ 5/23/2001 11:38:02 AM #
Isn't the quote like "What that does not break you will make you stronger?"

RE: I agree
Admin @ 5/23/2001 1:18:39 PM #
It's more like, "That which does not kill you only makes you stronger." -Freidrich Nietze

PalmInfocenter webmaster
RE: I agree
eipangan @ 5/24/2001 6:47:49 AM #
It's Friedrich (Wilhelm) Nietzsche.

Peace. :)


Nice try Ed, but Palm is DEAD
I.M. Anonymous @ 5/24/2001 3:37:09 PM #
I realize you have your reasons for trying to stay upbeat, Ed but if you are honest and look at the numbers, Palm is dead as a company. Those of us with stock portfolios and who follow business transactions realize this. While you may hope they will survive, I don't see any way thay this is possible.

RE: I agree
I.M. Anonymous @ 8/14/2002 11:23:17 PM #
As an ex-Pocket PC user I got fed up with the constant crashing and financial outlays of accessories and software. While the palm is limited in many ways to the PPC, I have found that is reliability and software availability is much better. LONG LIVE THE PALM!!!

A St. Louis Palm user (believer)!!!

RE: I agree
andrewholler @ 1/17/2003 1:38:00 PM #
of course it won't fail! Look at the huge corporation it built. It has great products and many users of their products.
Look at all of the people here alone.

Email me about anything at
Current PDA:= Palm M130
by the way, Can someone buy me a TT?


Coyote67 @ 5/23/2001 12:10:51 PM #
Thank you for saying something I've been trying to convey to people at work for the last month. Bless you ED. Btw, good catch on the IRS thing, haven't seen that mentioned anywhere. This article is so going to my entire department.

OH my god...becky, look at her....Prism.

I.M. Anonymous @ 5/23/2001 12:32:49 PM #
What's the story on Osborn Computer? I've never heard of it before.
Good article too. I agree Palm isn't going anywhere but just the fact that Microsoft is lurking in the background annoys me.

RE: Osborn's Sad Story
I.M. Anonymous @ 5/23/2001 12:45:26 PM #
Osborn's salespeople told everybody who was thinking of buying their computer to wait until the next model came out, which would fix all the problems in their current one. The company didn't have any sales so it ran out of money before the next model was finished. End of company.

I disagree on some points...
I.M. Anonymous @ 5/23/2001 12:57:18 PM #

First of all, I do agree that the Palm OS will continue to be around for a while.

However, how can you say:
"just about all of this[Palm's woes] is self-inflicted. If Palm 's management team hadn't made some mistakes, the company would be in much better shape. Mistakes can be fixed. If Palm's woes were caused by their competitors taking away their business, that would be a much worse situation. In a race, if you are losing because you are doing something wrong, you have a chance to fix it and win. If you are losing because the other guy is just faster, it's hopeless. And this isn't a sprint, it's a marathon. There is still time fix things."

I know that you addressed Palm licensees as a "thornier issue" issue later. BUT Handspring took over 20% of Palm market shares in little over a year, that's major competition.

That was just Handspring, what about the other licensees? Sony's first Clie didn't really make an impression on the US market last year, but they came back with the N710C that will surely make an impact this year. TRGpro/HandEra was relatively unknown last year, but with the HandEra 330, they will definitely attract notice.

Last year, Handspring was Palm's only major Palm OS competition, but this year the competition will be three-fold, Handspring, SONY, and HandEra.

I don't view Palm's licensees are "thornier" issues, they are more like spears!!

jayhawk88 @ 5/23/2001 2:49:19 PM #
Agreed, excellent piece. The most telling line, I think:

"While it is true that Palm sales are no longer growing 100% every year, UBS Warburg estimates that Palm's sales will grow a respectable 20% this year."

Most companies would kill to have a 20% growth rate in sales. I think the free-for-all days of the 90's still is clouding peoples vision when it comes to the computing industry. It's unreasonable to expect this industry to continue to grow like that forever, and now that things are starting to level off, only the strong will survive, just like it should be. And any company that can claim the assets that Palm has is definitely one of the strong.

As long as It didn't run out of cash

I.M. Anonymous @ 5/23/2001 12:33:55 PM #
While Ed commented that Palm had oodles of cash to last through this difficult period, it not as much as say Apple had. Palm had around 500-600M on hand last quarter but it is expected to lose 170M this quarter plus 300M charge for excess inventory. How much cash will be left after this quarter is unclear. While Palm carry a respected name and should be able to raise cash, it should act fast as the economic slowdown had dried up the market for new funds. Look at Lucent, a once market darling which had its credit rating downgraded to near junk bond status. Still, with its new products in the market, there's no way to go but up. I still believe Palm forecast of 50% drop in sales compared top last year is exaggerated, since the quarter had not ended.
Note: Correct me if I am wrong with the figures, as they are from what I read and I am unsure if I remember them right.

RE: As long as It didn't run out of cash
I.M. Anonymous @ 5/23/2001 12:52:35 PM #
Unlike Microsoft or even Apple, Palm can't afford to make many mistakes. Apple had around $4 billion in cash, Microsoft, who knows how many, $20B? Microsoft can afford to make clunkers like WinCE 2.0 and stays in the business. Palm can't. One more big mistake might sent its shares plunging and ripe for take over. Still the rebound in Palm shares price the past days should calm some fears.

RE: As long as It didn't run out of cash
Ed @ 5/23/2001 1:05:31 PM #
Palm is going to have a spectacularly bad quarter. Fortunately, it will be over May 31. But Palm deserves credit for taking their medicine all at once rather than a little bit at a time. They are going to lose scads of money and take a big write-off but most of this money is going pay to fix its mistakes. I expect things to be much brighter next quarter. I'm not saying they will be back in the black but they'll loose much less money. And the quarter after that I hope to see them back in the plus column.

You're right, Palm can't afford another major blunder. But they've already made more mistakes than average this year already so I think they are safe enough.

News Editor
Palm Infocenter

RE: As long as It didn't run out of cash
I.M. Anonymous @ 5/23/2001 8:36:22 PM #
"But they've already made more mistakes than average this year already so I think they are safe enough."

This doesn't make any sense... since when is there a limit to mistakes?

Palm CEO: "The bad news is that we've screwed up four times this quarter. The good news is that we are only one screw up away from our limit!"

Palm Employees: "Hurray! Talk about progress. I bet our competitors aren't even close to meeting their screw up quota. We rock!"


RE: As long as It didn't run out of cash
Ed @ 5/23/2001 9:59:58 PM #
I guess my pre-assumption is that Palm's executive team is reasonable competent. Yours seems to be that they aren't. We'll know for sure in a few months.

News Editor
Palm Infocenter
RE: As long as It didn't run out of cash
I.M. Anonymous @ 5/25/2001 3:00:27 PM #
What happens if Palm runs out of cash? Two words: debt financing. Palm can put out bonds. Sure, they won't be as high grade as bonds put out by any of the blue chip cos., but as long as they get their act together people will buy them. Not all cash flow comes from stocks alone (equity financing).

Hidden mistakes

I.M. Anonymous @ 5/23/2001 2:15:26 PM #
Palm was wildly successful with the Vx but waited a bit too long to build on that success. They had focused in on the low-end market with the m100/m105, but were criticized for not bringing in the "next big thing" to top the V series, and the VII series was going nowhere. This, I believe, is one of the major factors in their rush to introduce the m505.

I think the 500 series was originally intended to be more of a "stop gap" measure to satisfy people who wanted an upgrade to the Vx, at least until OS5.0 and ARM-based processors were introduced in Palm products. That's what I think it appears to be, based on its feature set. Yes, the botched release of the product was a big-time blunder, but the underlying problem in all this is the real appeal of the 500 series in light of its inflated expectations. The premature announcement made the m505, in particular, look like it should be the "ultimate" Palm, but it really isn't, which is one of the reasons why Sony is able to steal some thunder. Don't get me wrong--if I didn't already own a Vx, I'd jump at an m505. But I do own a Vx, and I haven't seen enough extra "beef" in the m505 to attract my cash.

I relate it to quarterbacks. Troy Aikman, the latest "franchise quarterback" of the Cowboys, has retired. At the height of his career, he was the "state of the art" QB, but as time progressed, Cowboys fans wanted new skills--more mobility, etc. Aikman's gone now, and the Cowboys have signed Tony Banks, who brings more mobility, but is probably not going to be considered a "franchise quarterback." Now, I know Banks has had a somewhat lackluster career thus far, and this fact doesn't quite fit the analogy. BUT, bottom line is that Banks is intended to keep people satisfied until the next "franchise player." Don't expect TOO much of him, and you'll be happy. Well, don't expect TOO much of the m505, and you'll be happy. Here's hoping Palm hasn't unwittingly created outrageous expectations of the 500 series...

RE: Hidden mistakes
I.M. Anonymous @ 5/23/2001 7:58:45 PM #
Under your analogy, though we're paying Tony Banks a Troy Aikman salary.

(Don't get me wrong -- I like my m505. But the argument against it is that it is a bit lackluster for the price. It is not a good response to say "Oh, as long as you expect lackluster, you won't be disappointed. If I want Tony Banks, I should pay a Tony Banks price. If I pay a Troy Aikman price, I should get Troy Aikman. I think my m505 is a Peyton Manning. Not flashy, but clearly gifted.)

RE: Hidden mistakes
I.M. Anonymous @ 5/24/2001 8:27:20 PM #
If someone had said it was a Peyton Manning, I would have gotten one before! At least it isn't a Ryan Leaf like some people say it is.

Palm OS Emulator under development.

I.M. Anonymous @ 5/23/2001 3:06:01 PM #
Palm better hurry up, because a new emulator of Palm OS is being develop for pocket PC right now. will be done in the coming month.

RE: Palm OS Emulator under development.
I.M. Anonymous @ 5/23/2001 4:04:57 PM #
The new Palm machines will be oriented to use dedicated hardware like the new Clie, so I want to Know how this can be emulated on the Superslow WinCE.

Another fact is if PPC people want to run palm software why not buy a palm????

RE: Palm OS Emulator under development.
I.M. Anonymous @ 5/23/2001 4:37:59 PM #
How much would that cost. The PDA hardware that is required to run CE is very expensive and takes up a large amount of space.
Pay $500 to run PALM apps on a CE? Why not just get a PALM.

RE: Palm OS Emulator under development.
I.M. Anonymous @ 5/23/2001 7:07:35 PM #
if you have a palm app emulator you can have the best of both worlds, pocket pc's awesome graphics and sound capabilities and the palm's enormous amount of programs

RE: Palm OS Emulator under development.
I.M. Anonymous @ 5/24/2001 7:15:51 AM #
...while I don't believe this is going to happen, it would a good thing for Palm, not MS: If you look at the history of Personal Computers, emulators have always helped the emulated OS, but not the machine it runs on. Why? If PPC users can run Palm applications on their machines, why should anybody develop a PPC version of that particular software?!

Just look at the Mac as an example: Those PC/Windows emulators are sign of the weakness of the Mac market (i.e. too few software titles compared to the Windows world) and haven't helped Apple at all. Same thing would be true for the PDA world...

one thing most people may be over looking

rajen @ 5/23/2001 3:28:11 PM #
Since Palm has been forced to do this firesale on old Palms there could be a surprising upside....

Palm's marketshare may increase. They may be able to take some of Handspring's marketshare back and could take back some of the marketshare Pocket PC (mainly the ipaq) has taken.

In addition, I view the adoption of Palms as a snowball. The more and more people buying Palms at cheap prices ... the more word-of-mouth advertising Palm will get. The number of people using Palms could possibly increase very rapidly.

RE: one thing most people may be over looking
I.M. Anonymous @ 5/23/2001 4:36:39 PM #
No way will Palm take back market share from Ipaq.

RE: one thing most people may be over looking
I.M. Anonymous @ 5/23/2001 4:43:50 PM #
> No way will Palm take back market share from Ipaq.

Why not? The PPC is an over complicated OS suited only for the most hard core Gates kissers. Palm is much easier to use. Compaq sells lots of iPaqs but I wonder what the return rate is. Seems I hear lots from people who tried it then gave it back because it wouldn't last through their whole work day.

RE: one thing most people may be over looking
sub_tex @ 5/23/2001 10:28:09 PM #
i like the snowball analogy better than the football one........

all that quarterback talk..............snowball talk is much easier.


but to address the "complicated OS" comment, that's a very lame argument, again tinted by personal preference. we may as well be arguing over mac os vs. windows. it's a stupid argument to try and bring up , because, like so many other factors that go into what pocket device you run, in the end it all boils down to what works best for YOU.

RE: one thing most people may be over looking
I.M. Anonymous @ 6/28/2001 12:36:46 PM #
Actually, I'm one of those who dropped th Ipaq for a m505... Sounds crazy doesn't it...

You get tired of lugging the Ipaq in your hand all the time because it's too big for your shirt pocket... and at the end of the day, it's always when you left it at your desk/in the trunk inside your briefcase that you need your PDA...

And let's not talk about having the Ipaq in a belt case.. on the right, the mobile phone, on the left, the Ipaq... Where do I put the gun?

Okay, the m505 does not come close to the Ipaq in terms of screen and readibility (no way close) nor does it come close to memory extension ease of use ... (oops my Ipaq is having a baby...)

But at least, I've my m505 with me all the time w/o people asking me to show it to them because that's the first thing they see when I enter a room...

My belief... you buy the Ipaq because it looks great and when you have gotten used to it you move back to a M505 because you finally know what you really need in a day to day life...

Listen to all the Ipaq users who are using it because Microsoft/Compaq pulled some weight with the IT department...

Get real

I.M. Anonymous @ 5/23/2001 4:33:57 PM #
You have no idea what you are talking aobout and should stick to reviewing PDA's rather than giving financial advice. The facts are Palm will run out of money in November and they do not make enough money on licensing to stay in business. I'm betting they will be bought soon. I am also betting the quality control problems they are having with the M505 is going to cost them alot of money.

RE: Get real
I.M. Anonymous @ 5/23/2001 4:47:33 PM #
So you're saying that a company that makes the OS that is on 80 or 90 percent of the handhelds in the world can't get a loan?

There are no "quality control problems" on the m505. Palm just made some tradeoffs that you don't like. Good thing lots of other people like it fine.

RE: Get real
I.M. Anonymous @ 5/23/2001 5:18:17 PM #
i have to disagree with your statement that there are no "quality control" issues with the m505. I have compared different 505's next to eachother, some with fully functioning sidelights, others with ones that only light half the screen, etc. This situation has been widely experienced (i.e. it's not just a matter of a couple bad units). I love the 505, too, but there ARE differences between units, which spells quality control difficulties in my book.

RE: Get real
I.M. Anonymous @ 5/23/2001 10:47:52 PM #
Palm has a huge problem with the fact that they are not at all focused on their customer, that will be their downfall.

RE: Get real
I.M. Anonymous @ 6/30/2001 2:45:53 PM #
The Palm m100 gave me some similar ideas about quality control as well. My first purchase had a scracth on the cover. Since it annoyed me, I exchanged it for another one. The second one had a touch screen that was positioned too far from the LCD. In addition, the faceplate was overly wobbly compared to the first one. I returned that one too. The third one was still a bit different from the others. The defects were few, but there were deep scracthes on the faceplate. Each m100 seemed to be too different from each other.

I love my m505

I.M. Anonymous @ 5/23/2001 4:58:43 PM #
No matter what you guys say about m505, the fact of the matter doesn't change. I love my m505! It's a great machine!

RE: I love my m505
I.M. Anonymous @ 5/23/2001 5:09:37 PM #
I second that.

RE: I love my m505
I.M. Anonymous @ 5/23/2001 5:48:07 PM #
I third it. I have been using Palms since first release and the 505 is the best unit out. The main tradeoffs that people are concerned with is the screen.
Works great for me. Having the capability of color and in direct sunlight is great. The backlight takes care of the rest. I am the only Palm trainer in my area of the states and all students that have seen the 505 compared to the others units as well as the CE units agree that its a nicely designed package. It comes down to this "say what you do and do what you say". Palm has been doing this for years. Those that dont like it, dont buy it.

RE: I love my m505
I.M. Anonymous @ 5/23/2001 7:53:02 PM #
I have a IIIc and I also have the capability of color in sunlight

RE: I love my m505
I.M. Anonymous @ 5/23/2001 9:30:59 PM #
I used to utilize a Palm lllc, and I do a lot of car driving, forget about the lllc, I was getting crazy trying to guess phone numbers.

Now I am the happiest customer with my M505. IF ONLY THEY COULD SUPPLY A HOTSYNCH CABLE-SERIAL to connect it to my cell phone, I would make a couple of bucks selling my lllc... and then I could buy a SD 128 MB wowwwwwwww

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