Palm to Create Subsidiary for OS Business
Palm, Inc. has announced it will form a wholly owned subsidiary out of its Platform Solutions Group, which oversees the Palm OS and its licencing. This isn't exactly the same as splitting off the OS portion of the company from the hardware part, but it's close. The new subsidiary will still use Palm's buildings and some administrative staff.
A committee of the board of directors of Palm, chaired by David C. Nagel, will oversee the subsidiary's creation by the end of this year.
"We're eager to foster the independence of both of our businesses, and creating a separate subsidiary for our platform activities will allow us to bring greater clarity of mission, better serve licensees and, we believe, increase shareholder value longer term," said Carl Yankowski, Palm chief executive officer.
"This is another important step to strengthen our technology and deliver powerful and elegant solutions for our Palm OS licensees," said Alan Kessler, Palm general manager of the Platform Solutions Group. "We continue to build a large and powerful base of registered developers -- more than 170,000 of them -- with more than 10,000 commercially available applications. This is great news for the Palm Economy."
An Advisory Council of Palm OS licensees also will be formed to consult on the subsidiary's objectives and provide a direct channel for communication with the Platform Group.
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.
The reason the operating system portion isn't yet being fully spun off is it doesn't make enough money to support itself. While licensees pay Palm a fee for every handheld they sell, they don't pay enough to cover the amount Palm spends on developing the Palm OS.
This move doesn't come as a surprise. Palm's CEO said a few months ago that the company was considering splitting the OS portion of the company off.
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i voted not to split
spritting?
how do you sprit a company, ed?
RE: spritting?
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News Editor
Palm Infocenter
RE: spritting?
-Raishe
"Monster Pig kills Jesus
More at 11"
This may lead to a full break
"Why would you create a subsidiary if you aren't planning to spin the business off?"
Indeed. I'm sure you could probably come up with some sound financial reasons to do something like this, but I'd say the writings on the wall. Probably Palm hopes continuing m50x and possibly m700 sales will give both divisions some strong quarters coming up, then complete the spin-off at that point.
RE: This may lead to a full break
1. as you stated, as a pre-cursor to spinning off completely
2. organizationally the company will operate very differently (e.g. a President for the subsidiary will make most decisions, needing approval for only the most important ones
3. financially, the two companies would have stand-alone financials plus the parent would have a consolidated financial (that would be the only publicly released financials). This way they can truely judge their financial success.
RE: This may lead to a full break
so something is definitely up. And knowing Palm, usually they are pretty predictable. Most of the exect are unimaginative B-school type. Somebody, quick open a management textbook....
RE: This may lead to a full break
Now say palm spins off the OS, it runs into trouble, then gets snatched up by sony. Where does that leave palm hardware? They loose control of the direction of the OS, their products are increasingly less innovative than the clones. Say palm hardware goes out of business? Then you'd have a 'palm-economy' without palms, just like you have a 'PC-eoconomy' without original IBM-PC's. Microsoft/Intel basically rules the PC standard.
What would make sense is for palm to sell the OS subsidiary to handspring so the original guy (hawkins?) could continue his vision.
RE: This may lead to a full break
IBM has virtually unlimited funds for Research & Development, has strong ties to the corporate community, and would instantly give credibility for the Palm OS platform for business use for those few companies that still have not decided on a PDA Platform.
RE: This may lead to a full break
RE: This may lead to a full break
they can just cobble together an ARM PDA and install embedded Linux, and be done with it. It's cheaper and more profitable that way, not to mention it's good karma.
RE: This may lead to a full break
RE: This may lead to a full break
RE: This may lead to a full break
-Raishe
"Monster Pig kills Jesus
More at 11"
Need cash will sell asset
or is this going to be just like "Psion"?
But I'll put my bet on the Lucent style money raising trick.
aha !
Why isn't the OS profitable?
Palms have been around for a number of years now. There's no reason why their current R&D shouldn't be paid for via the licensees and hardware customers. If I was Palm CEO, I'd raise the $8 I get for each palm sold (for the OS) to $25. If some of the clones drop out or switch to PocketPC, oh well.. Being in business is about making money, not loosing it.
RE: Why isn't the OS profitable?
Eric Garrido
RE: Why isn't the OS profitable? - here's why
- You have to manage inventory (or it will lead to big writeoffs),
- collections (you can sell to alot of customers (remember Palm doesn't sell directly except from their website which I'm sure is a small part of their total sales)but you have to collect from them also. With alot of eCommerce sites going under there could be alot of losses from not being able to collect some or all of their receivables.
- There are alot of fixed costs that a company needs to recover to be profitable. For example building costs. Even if you sell a Palm for $400 with a manufacturering cost of $200 you still might not make money because the unit sales might not make enough "gross profit" (selling price - mfg cost) to pay for these building and other fixed costs.
- lawsuits (takes management time and legal costs)
- etc. etc.
Good Corporate Politics
I can understand Handspring, HandEra, and the rest being unhappy that the company that makes their operating system also competes against them. While "co-opetition" may have been one of the buzz words of the 90s, it makes for an uneasy partnership. This unusual relationship makes it difficult for Palm to defend itself against charges that the OS developers give preferential treatment to Palm's hardware division. Dividing the company will held reduce accusations of corporate nepotism.
If anything, the recent downturn in the handheld market has slowed this process, rather than hastened it. If all Palm-based handhelds were selling at a greater rate then the OS licencing business would be more profitable and could be viable as a separate company at an earlier date.
RE: Good Corporate Politics
RE: Good Corporate Politics
You can read my full opinion about Palm's relationship with its licensees in this editorial I wrote a few months ago:
www.palminfocenter.com/view_story.asp?ID=1706
You also might also be interested in Michael Mace's thoughts on this:
www.palminfocenter.com/view_Story.asp?ID=1706&MODE=FLAT#8020
(I can confirm that this really is Michael Mace, not someone using his name.)
---
News Editor
Palm Infocenter
RE: Good Corporate Politics
I also don't see this as a sign of weakness. It is well known that Strategic partners don't want to compete with yet rely on the same company. This gives Palm an unfair advantage in their eyes.
This has been a complaint against M$ for years now (and Apple when they tried licensing their OS). If you don't believe me, ask the Feds who wanted to breakup M$ for this very reason.
Palm is just being more "fair" to it's strategic partners and allowing the OS subsidiary to "prove" itself by becoming profitable. The only way the OS company can do this is to service ALL their customers (e.g. Sony, HandEra, HandSpring, IBM, Palm) equally. For example, I would hope that all companies will have equal support of Palm Desktop and Palm OS AT THE SAME TIME.
Good move Palm.
RE: Good Corporate Politics
Plus, if you remember the last rumor about Handspring jumping ship, than a month later they sign contract for "undisclosed" amount. (wonder, wonder) than we know Palm was trying to jerk HS but they couldn't pull it off. Afterall, their share of sale was eaten alive by Handspring at exponential rate at that time.
from all licensee, (HS/SNE/handEra) Palm can only jerk around HandEra.
RE: Good Corporate Politics
but really, everybody else has better hardware, and from HS/HandEra/Sony we know that they are reasonably competent to write important extension.
Palm isn't that far ahead in OS know-how curve to be able to say they have significant advantage on the next gen OS.
remember the 4.0 is a basket case, this isn't even worth arguing. What you see is what you get, in term of strategy. But OS 5.0 is different story. It is make or brake time for Palm-kind. 5.0 will determine if Palm will be a viable future PDA or become another curious computing hisotry footnote.
Ed, you're wrong about Palm's ability to control the OS
This is dead wrong. Palm is legally bound by their license agreements to supply the OS to Handspring, Sony, IBM (who just sells rebadged versions of Palm's PDAs), Symbol, HandEra, Acer and a number of other hardware manufacturers.
Sony's license was announced in November, 1999. In April, 2001, Handspring extended its license to use the Palm OS through April, 2009, while in May, Symbol extended its license of the Palm OS through April 2005. Acer signed up in June, 2001. Perhaps you could do a bit of research and let us know when the other agreements expire. It's probably safe to assume that the other licenses all last at least 4 or 5 years.
As you are aware, Palm licenses the OS for less than $10 per PDA sold - not enough to make the company any significant profits and this is why they are so dependent on hardware sales. Given the fact that they are locked into long term OS contracts, don't expect this arrangement to change any time soon.
Also remember that the two most significant additions to the OS were supplied by its licensees/competitors, namely 16 bit color (Handspring) and VFS (Sony). The third significant innovation - AutoCard (HandEra) - is not truly part of an OS, but Palm should have rushed to license this technology for their PDAs. Palm thought they could be clever and sit back and have their licensees do all the OS innovation for them and simply cherry pick whatever they want and then roll it into the new Palm OS. Too bad they didn't bother spending the money they saved on OS development on trying to improve their hardware!
Ironically, Palm itself receltly said,
"IF WE FAIL TO EFFECTIVELY RESPOND TO COMPETITION FROM PRODUCTS INTRODUCED BY LICENSEES OF OUR PALM PLATFORM OR IF OUR LICENSEES FAIL TO SELL PRODUCTS BASED ON THE PALM PLATFORM, OUR RESULTS OF OPERATIONS MAY SUFFER AS THE REVENUES WE RECEIVE FROM LICENSE FEES MAY NOT COMPENSATE FOR THE LOSS OF REVENUES FROM OUR DEVICE PRODUCTS.
The success of our business depends on both the sale of handheld device products and the licensing of our Palm platform. However, licensees of our Palm platform offer products that compete directly or indirectly with our handheld computing devices. For example, licensees such as Handspring and Sony use our Palm platform in products that can compete with our handheld devices. In addition, our Palm platform has been licensed by other manufacturers such as Nokia and Kyocera for use in devices such as mobile phones or other similar products that can compete indirectly with our handheld devices. If revenues from our handheld devices suffer because of competition from licensees of our Palm platform, our results of operations would suffer and our ability to implement our business model would be seriously challenged. In addition, our licensees may not be successful in selling products based on the Palm platform, which could harm our business and results of operations."
http://biz.yahoo.com/e/010411/palm.html
RE: Good Corporate Politics
Remember when Apple used to license its OS? Then one day they stopped. Just made an announcement and it was over. Palm could probably do that, too.
Don't forget, this is America. Companies are only bound by what can be proved in court. If Palm withdrew Handspring's contract, they could keep them tied up in court until Handspring was dead. Palm would eventually lose but it would be moot. Even a big $$$ payback can't bring a dead company back.
I'm not saying Palm will or should, but they COULD.
Palm could never win against Sony
And do you really think Palm could win a legal battle with Sony? Don't be silly.
The companies that signed on to license Apple's OS were minor league manufacturers that had no clout with Apple. Palm, on the other hand, was in no position to bargain with Sony, etc.
RE: Good Corporate Politics
If there is one company who knows how to handle sucker contract, it would be Sony, not PALM.
Handspring i think would just take the route of out innovate and make PALM irrelevant if push come to shove.
so really, it comes down to who got the brain, money and the guts. I would say Palm isn't the top on any of those departments.
RE: Good Corporate Politics
PALM INC (PALM)
Quarterly Report (SEC form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
http://biz.yahoo.com/e/010411/palm.html
I'd suggest anyone interested in Palms read the whole article. I learned more about the real state of the "Palm economy" in 10 minutes reading the report than I have in the past 3 years I've owned Palms.
"Any litigation regarding patents or other intellectual property could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements or indemnify our Palm platform licensees. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of our products."
"If the Secure Digital Association does not ratify the Secure Digital input/output ("SDIO") specifications in a timely manner or if the SDIO standards ratified by the Secure Digital Association are not favorable to third party expansion solution developers, the deployment of third party expansion solutions might be delayed or affected, which could negatively impact sales of our products that include Secure Digital expansion slots, such as the m500 and m505 devices."
"Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We continue to increase the scope of our operations domestically and internationally and have increased our shipments and headcount substantially. At February 25, 2000, we had a total of approximately 878 regular employees. At March 2, 2001, we had a total of approximately 1,524 regular employees. This growth has placed a significant strain on our management systems and resources."
RE: Good Corporate Politics
Compare this to what a tiny company like TRG (HandEra) has been able to produce with a workforce of something like 50 - 100 employees.
RE: Good Corporate Politics
Also for sale.
How much do you think this package will worth in IPO these days? two mcDonald medium fries coupons maybe?
Palm should start reading their own reports!
http://biz.yahoo.com/e/001012/palm.html
IF WE DO NOT CORRECTLY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD DEVICES OR WE COULD HAVE COSTLY EXCESS PRODUCTION OR INVENTORIES.
Historically, we have seen steady increases in demand for our products and have generally been able to increase production to meet that demand. However, the demand for our products depends on many factors and is difficult to forecast, in part due to the market for our products being relatively new and currently experiencing high growth rates. As we introduce and support multiple handheld device products and as competition in the market for our products intensifies, we expect that it will become more difficult to forecast demand. Significant unanticipated fluctuations in demand could adversely impact our financial results and cause the following problems in our operations:
- If demand increases beyond what we forecast, we would have to rapidly increase production at our third party manufacturers. We depend on our suppliers to provide additional volumes of components and those suppliers might not be able to increase production rapidly enough to meet unexpected demand. There is the risk that even if we are able to procure enough components, our third party manufacturers might not be able to produce enough of our devices to meet the market demand for our products. The inability of either our manufacturers or our suppliers to increase production rapidly enough could cause us to fail to meet customer demand.
- Rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profits. Furthermore, if production is increased rapidly, manufacturing yields could decline, which may also lower our profits.
- If forecasted demand does not develop, we could have excess production resulting in higher inventories of finished products and components, which would use cash and could lead to write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity at our third party manufacturers and failure to meet some minimum purchase commitments, each of which could result in lower margins.
WE DO NOT KNOW IF THE PALM PLATFORM LICENSING AND INTERNET SERVICES PARTS OF OUR BUSINESS WILL BE ABLE TO GENERATE SIGNIFICANT REVENUE IN THE FUTURE, AND WE WILL CONTINUE TO RELY ON OUR HANDHELD DEVICE PRODUCTS AS THE PRIMARY SOURCE OF OUR REVENUE FOR THE FORESEEABLE FUTURE.
Our future growth and a significant portion of our future revenue depend on the commercial success of our Palm handheld devices, which comprise the primary product line that we currently offer. We expanded our Palm platform licensing and Internet services parts of our business only recently, and these parts of our business have generated a small percentage of our revenues. If revenues from our device business do not grow, our other business activities may not be able to compensate for this shortfall.
IF WE FAIL TO EFFECTIVELY RESPOND TO COMPETITION FROM PRODUCTS INTRODUCED BY LICENSEES OF OUR PALM PLATFORM OR IF OUR LICENSEES FAIL TO SELL PRODUCTS BASED ON THE PALM PLATFORM, OUR RESULTS OF OPERATIONS MAY SUFFER AS THE REVENUES WE RECEIVE FROM LICENSE FEES MAY NOT COMPENSATE FOR THE LOSS OF REVENUES FROM OUR DEVICE PRODUCTS.
The success of our business depends on both the sale of handheld device products and the licensing of
our Palm platform. However, licensees of our Palm platform offer products that compete directly or indirectly with our handheld computing devices. For example, licensees such as Handspring and Sony use our Palm platform in products that can compete with our handheld devices. In addition, our Palm platform has been licensed by other manufacturers such as Nokia and Kyocera for use in devices such as mobile phones or other similar products that can compete indirectly with our handheld devices. If revenues from our handheld devices suffer because of competition from licensees of our Palm platform, our results of operations would suffer and our ability to implement our business model would be seriously challenged. In addition, our licensees may not be successful in selling products based on the Palm platform, which could harm our business and results of operations.
RE: Palm should start reading their own reports!
Personally, if I am the power that be, I would fired everybody that doesn't have anything to do with writing program and designing the gadget itself. I would imagine that would be about less than 100 people hardcore techy, the rest are just lawyers, suits, loosers and interior decorators. (especially fired all the execs, they cost the most and produce the least. All they can do is giving speech and making marketing jingle and think up product packaging instead of a real cool gadgets)
they had almost 1500 people before and all they can come up was m505 and OS 4.0? Mann... So much for multibillion dollar IPO.
a perfect illustration that capitalism does not necessarily translate to efficient capital use.
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Eric Garrido