Palm And Handspring, Together Again
Arik Hesseldahl, 06.04.03, 1:15 PM ET
NEW YORK - In the end it had to happen.
With the slowdown in the handheld computing business and a drop in their respective stock prices, there's been a lingering question over whether or not market leader Palm (nasdaq: PALM - news - people ) should acquire its cousin Handspring (nasdaq: HAND - news - people ). We even suggested two years ago that they should do so.
Today the two companies announced that they had finally caught on to what was staring them in the face: that they're better together than apart.
But it apparently wasn't as obvious to executives at either company.
"I think that earlier in the histories of each company this wasn't the right thing to do," says Ed Colligan, Handspring's president and chief operating officer. "We had overlapping product lines and very little synergy. Once we went off in different paths in mobile computing, now there are incredible synergies."
Handspring was born out of Palm. Its founders--Chairman Jeff Hawkins, CEO Donna Dubinsky and Colligan--control more than one-third of Handspring stock between them. Hawkins and Dubinsky also were among Palm's founders and Hawkins was essentially the architect of the first Palm handhelds. He will be CTO in the new Palm.
The trio founded Handspring to compete with Palm on price and expandability. Their first product was the Handspring Visor, a consumer-oriented handheld that ran the Palm Operating System. It was popular, more expandable than Palm-made handhelds and cost less.
Now Mountain View, Calif.-based Handspring's products are both mobile phones and PDAs. Its Treo handhelds combine a Palm organizer with a mobile phone, and are much-loved by those who own them. But with 180,000 units sold, it hasn't given much competition to other mobile phones.
Meanwhile, Palm, of Miltpitas, Calif., needs to get into the voice business, and as yet hasn't done it that well. Its Tungsten W handheld is a wireless messaging device that also does voice, but it has met with limited success. Handspring is developing a follow-up to the Treo, a wireless phone that integrates the Palm OS that has impressed most who have seen it. That device now will be sold under the Palm brand. Handspring's connections with wireless carriers--its biggest customer is Sprint PCS (nyse: PCS - news - people )--will help.
Palm's other prize is Hawkins himself. Bringing him back into the fold should add new strength to Palm's future product lines, which, despite some interesting new devices in the last year or so, have lacked the spark of previous generations.
Palm's product lines currently include the low-priced Zire which sells for less than $100, and a second Zire product that includes a digital camera. Its higher-end Tungsten devices include wireless phone capabilities and Wi-Fi wireless networking capability.
The timing is certainly good. Microsoft (nasdaq: MSFT - news - people ) and its hardware partners, such as Hewlett-Packard (nyse: HPQ - news - people ), Dell (nasdaq: DELL - news - people ), Toshiba and others, certainly have a good deal of momentum behind them in the handheld space. Yet Microsoft hasn't really scored on the mobile phone front. Its Pocket PC phone edition hasn't yet shown much traction, though it too is showing potential.
The combined company should provide a united front against Microsoft, which has long been needed. Though neither company likes to talk about it, they've hurt each other with price competition.
But the competition isn't just Microsoft. Nokia (nyse: NOK - news - people ), Samsung and Sony-Ericsson, the wireless venture of Sony (nyse: SNE - news - people ) and Ericsson (nasdaq: ERICY - news - people ), all move millions of phones of every quarter. Samsung even sells phones that run the Palm OS that compete directly with those from Handspring.
"Palm has no hope of dominating the market for converged devices [those that combine PDAs and wireless phones] the same way it does handhelds," says analyst Alex Slawsby of market research firm IDC, Framingham, Mass.
The all-stock acquisition by Palm is worth about $169 million. Palm shares were up $2.29, or almost 19%, at $14.44 by 1:30 PM ET on the news. Handspring stock was up 14 cents, or more than 12%, at $1.25; its stock price closed above the $1 mark on May 30 for the first time since Jan. 16.
For Handspring the deal is a lifeline. Hemorrhaging cash, it reported a $90 million loss on sales of about $31 million. It had just enough cash to fund operations through the end of 2003. Meanwhile, Palm reported 2002 revenue of $1 billion, $500 million less than the previous year, and a net loss of $82 million compared with $356 million a year ago.
AI
