More Details on Spinning Off Palm's OS Subsidiary

In a recent SEC filing, Palm Inc. has released more details its plans to spin off the Palm Solutions Group, its OS and software division, into a subsidiary.

Palm plans to have this process completed no later than the end of this year. Also, it might be totally separated from Palm Inc. This process would include "a legal separation, third party investments by strategic partners, sub-IPO and spin-off".

This move is intended to deal with the problem of Palm Inc. both cooperating with its licensees and competing against them. Palm needs to work closely with the OS licensees, like Sony and Handspring, to improve the Palm OS but it also competes against them in hardware sales. Splitting off the portion of the company that develops the OS could greatly relieve some of the tension.

Incedentally, the SEC filing mentions the code name for the first ARM-based Palm: Hercules 1.0.

This SEC filing takes the form of the job offer that Palm made to David Nagel, who was hired to oversee the spin-off process and to be the CEO, President, and a director of the new company, if one is formed.

Palm must have really wanted to Mr. Nagel to leave his job at AT&T because his compensation package is a sweet deal. In addition to his $620 thousand salary he got a $200 thousand hiring bonus and can participate in a discretionary cash bonus plan giving him up to 70% of his base salary. This will be dependent on "various factors, including company and individual performance." It should be noted that no Palm executive has received any bonuses so far this year due to the company's current situation.

He is also eligible to get a great deal of Palm stock. One stock grant is an incentive to get the next generation of handhelds out the door. He gets 50 thousand Palm shares in two years or when the first ARM-based Palm handheld hits the market. The second set appears to be aimed at keeping him at Palm. He gets 50 thousand shares a year for the next two years if he still works there. He will also be able to buy up to 6.5% of the shares of the new company.

As AT&T's chief technology officer, Mr. Nagel led its technology strategy and R&D planning. As president of AT&T Labs, he was responsible for managing R&D for the company's next-generation Internet Protocol, data and managed services, and AT&T Business Services IT systems. Mr. Nagel also served as the chief technology officer for Concert, the global joint venture between AT&T and British Telecom.

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The whole spinoff thing doesn't solve anything

I.M. Anonymous @ 10/16/2001 1:35:25 PM #
Breaking Palm into two companies doesn't magically solve any of the fundamental problems.

It will suck up a year's worth of top management brain power to do the split. (Just like a lot of brain power was used to split Palm off from 3Com and prodcuts were slowed) That brain power should have been applied to product development, not managing lawyers and investment bankers.

Palm needs to focus on the product not corporate shuffle games.

I agree 1,000%. Palm has no common sense though.
I.M. Anonymous @ 10/16/2001 1:48:59 PM #

RE: The whole spinoff thing doesn't solve anything
Token @ 10/16/2001 1:50:11 PM #
Actually, it provides a separation of responsibilities that means that the Palm hardware group will be a customer of the Palm Platform group. It should mean that OS development is not tied to hardware releases by Palm - which is good for everyone (Handspring, Sony, and Handera included) except maybe MS 8^). It also means that if the hardware division tanks, it doesn't bring the OS down with it.

Nope - this is good news for everyone except the people left on the hardware side. Given the devices coming out of Palm OS licencees, I'd be feeling more than a little nervous over there.

Could this be the end of Palm?

I.M. Anonymous @ 10/16/2001 3:20:38 PM #
This spin-off could spell Palm's doom. For starters, 97% of Palm's profits come from hardware sales. So how can this new independent OS company survive on the remaining 3% of revenues? And how exactly does divesting their OS/software division strengthen the performance of the hardware business? That's like General motors selling off it's muffler division.

I don't see how this split is going to benefit anyone? In fact, it could do much more harm than good!

I.M. Anonymous @ 10/16/2001 3:40:50 PM #
This is good for the Palm Platform. While Palm's hardware division (who makes the handhelds) is in trouble, the Palm OS is doing better than ever. Giving the OS ownership to a different company means if the hardware division continues to make dull handhelds and go belly up, the Palm OS won't go with them. I just wish they made more than $8 on each box that Sony, HandSpring and so on sold.

RE: Could this be the end of Palm?
I.M. Anonymous @ 10/17/2001 1:21:23 AM #
also, the hardware division now has to pay the OS subsidiary $8 for each Palm they sell too!

RE: Palm OS doing better than ever?
I.M. Anonymous @ 10/17/2001 5:11:21 AM #
the palm os cant be doing better than ever if they've had to cancel cellphone projects with nokia and Motorla.

Too little, too late i fear. what a differnce a couple of years make

RE: Could this be the end of Palm?
bcombee @ 10/17/2001 8:13:08 AM #
While I can't comment on Nokia, I'd say that cancelling the project with Motorola had far more to do with Motorola than Palm. When that project was killed in early 2001, Motorola was cutting projects all over the place. Motorola still has a big stake in Palm OS: they're a silicon partner for ARM-based products with the Dragonball MX1 and they own the primary C/C++ tools vendor for the device, Metrowerks (my employer).

RE: Palm OS doing better than ever?
I.M. Anonymous @ 10/17/2001 9:13:19 AM #
> the palm os cant be doing better than ever if they've had to cancel cellphone projects with nokia and Motorla.

You've been listening to the trolls. At least part of the reason Motorola and Nokia cancelled their projects is too much competition. With Kyocera, Samsung, and now HandSpring making Palm smartphones, the market is getting congested.

No matter what some people say, the Palm OS dominates the handheld space the way Windows dominates the desktop space. Here's something from last week:
The unit market share for Palm OS-based devices remained
stable with 82.5%. Its share of revenue was 78.5% in August.
Pocket PCs made up just 13% of the number of units sold,
significantly less than the total for just Handspring, the number
two Palm OS licensee.

RE: Could this be the end of Palm?
I.M. Anonymous @ 10/17/2001 10:46:47 AM #
that data sale is retail channel only, it doesn't refelct web sale, and large enterprise contract.

RE: Could this be the end of Palm?
I.M. Anonymous @ 10/17/2001 3:29:03 PM #
This should be a great thing for Palm, hardly the end. One of Palm's revenue problems has been inherient in their business model. They tried to make all there money from hardware sales, and allowed the OS to be licensed cheaply. Not a bad idea if you want your OS to dominate, but once the hardware market became saturated and hardware sales dried up they were left with a great OS which they aren't making revenue from. I think that along with the spin off company we will see a new approach to generating revenue through the OS, and not just trying to profit from the hardware sales.


Ed @ 10/16/2001 5:34:27 PM #
I almost forgot to add, the SEC filing mentions the code name for the first ARM-based Palm: Hercules 1.0.

News Editor
RE: Hercules
I.M. Anonymous @ 10/16/2001 6:57:42 PM #
Thanks, I can sleep better now... that question had been bugging me for months...! Sheesh...

Mixed feelings

drw @ 10/16/2001 6:54:38 PM #
All I have to say is it will be interesting to see how this works out over the next couple years.

A PalmOS company will need to expand into business software solutions to supplement it's income. They could start with a "Palm Office Suite" and slowly kill off the other office suites. They need to hire some ex-microsoft employees to get the cut-throat attitude that has served microsoft so well.

David in Pflugerville, TX

RE: Mixed feelings
I.M. Anonymous @ 10/16/2001 11:16:28 PM #
hmm. that's great.

swami Anonymous thinks this will lead to an exclusively Microsoft Office-compatible palm office platform.

something about cutthroat execs...


too late?

I.M. Anonymous @ 10/17/2001 12:42:30 AM #
Is Hercules 1.0 suppose to be the answer for early next year CE 4.0? if so how come we haven't hear any beta release of it.

RE: too late?
GrouchoMarx @ 10/17/2001 2:23:20 AM #
CE 4.0 is PocketPC 2002, which has already been released. The ARM-based OS has been known as "OS 5" in most circles until now. Hercules 1.0 is probably just a development codename. (A mythical figure with a "strong ARM". Rimshot!) Palm has said that OS 5 / ARM / whatever is not due until 2nd half of 2002 at the earliest. Think of it as the Palm equivalent of OS X for the Mac, but implemented before things get too critical. :-)

RE: too late?
I.M. Anonymous @ 10/17/2001 2:42:51 AM #
Actually no. CE 4 hasn't been released yet.

PocketPC 2002 uses CE 3 (which is just a kernel and underlying OS - no apps or shell) with an updated shell and apps. The extras make PocketPC 2002.

CE 4 is still in beta and we'll probably see a PocketPC platform built off it in about 18 months.

RE: too late?
I.M. Anonymous @ 10/17/2001 10:39:59 AM #
I tought CE 4.0 suppose to come out early spring or summer at the latest? The Beta program has been out for several months now. Another 18 months will make it almost 2 yrs and that is highly uncharacteristic of CE development cycle.

RE: too late?
I.M. Anonymous @ 10/17/2001 11:38:53 PM #
People, for the last time, Windows CE is not just the operating system for handhelds. It is software for embedded systems. It will run on all different types of devices. Sega Dreamcast runs a version of Windows CE 3.0. Yes, CE 4.0 has been in beta for months and when the NEXT version of the Pocket PC OS comes out, it will most likely be based on CE 4.0. PPC 2002 is basically just a GUI overlaying a CE 3.0 kernel.

Pretty Obvious

I.M. Anonymous @ 10/17/2001 11:52:45 AM #
Split the company into 2 directions and you have twice the survivability.

Do not be suprised if you see Palm Hardware running Windows CE very shortly.

The publicized motive is rarely the true motive, has as much to do with hardware as the OS.

RE: Pretty Obvious
Token @ 10/17/2001 12:27:18 PM #
Flip side - PalmOS for iPaq?

RE: Pretty Obvious (CE on Palm hw)
I.M. Anonymous @ 10/18/2001 11:06:25 AM #
This does NOT seem pretty obvious!!
Lessee, can you say SoftPC on a Z80?
trans: not fast enough.

RE: Pretty Obvious
I.M. Anonymous @ 10/17/2001 1:08:11 PM #
Palm hardware running CE..?

Riiiiiiight. And giant winged monkeys will fly out my butt, too...!

Why buy the BeOS if you're just going to cop out and run CE on a Palm-branded device?? That makes no sense at all...

What now?

I.M. Anonymous @ 10/17/2001 12:53:42 PM #
What happens now with the Be, Inc. assets and intellectual property? Could this be a good thing for BeOS fans?

I.M. Anonymous @ 10/17/2001 2:16:59 PM #
This move looks promising to us BeOS users. Hopefully this means that Palm will put some effort into developing other operating systems such as BeOS, which they are supposedly gonna buy come a month from now.

RE: What now?
I.M. Anonymous @ 10/17/2001 4:16:04 PM #
If Palm was smart, they would find some way to continue development of the BeOS desktop. If the code was licensed out to developers, there might not be too much overhead costs either. If a desktopPalmOS (BeOS) was developed to complement a new generation of Palm handhelds, they would definately have my money.

I.M. Anonymous @ 10/18/2001 1:23:07 AM #
Yeah! And they got it for cheap. 11 Million $ for a OS they wanted 100 Million from Apple before Apple baught Next!

RE: What now?
2sheds @ 10/19/2001 4:12:00 PM #
I want BeOS R6 much more than ARMPalm >:-|
I can stay with my Visor or any of those PalmOS4 beasts for 3 years or more, but I can't live w/o new BeOS, this OS is so damn cool!!! And sixth release would be outstanding (if only...).
Palm has got only one chance if they close BeOS forever - to provide me with next-gen handheld that would be better than my desktop (i.e. mobile, always-on wireless internet, Mozilla-class browser with Flash, Java and JS, complete office suite, graphic editor, BlueTooth etc). Otherwise I'll switch to Psion and go to Tibet.

Do your homework on this guy.

I.M. Anonymous @ 10/18/2001 11:35:22 AM #
When Dave Nagel was at AT&T, he was vehemently opposed to spinning off any Labs technology
into a standalone business - though he never provided a reasonable explanation beyond "Because
I'm the Daddy." Funny how he's changing his tune now that he standing to be financially rewarded

Read up on this guy - there are a couple of books on Apple history where he is mentioned. He is
the business equivalent to baseballs' "Good glove, no stick." He's never been able to execute on
anything and presided over some pretty expensive failures - in middleware and unified messaging -
while at AT&T.



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