Executives for personal digital assistant giant Palm Inc. last week discussed the possibility of splitting the company’s operating system business and its device manufacturing segment into two separate companies, an idea that has fueled a hefty amount of discussions during the past few months.
Palm spokeswoman Marlene Somsak downplayed the statements, adding that any publicly traded company would consider a split if it meant creating a greater value for its shareholders.
While some industry watchers see a break up as a potentially good move for Palm-which has suffered from steeply declining revenues and hundreds of layoffs-others aren’t as quick to judge.
“We need more information about the specifics,” said Alex Slawsby, an analyst with market research firm IDC.
Slawsby said Palm’s statements are likely a way for the company to gauge opinion on the idea and see what the general reaction is from investors and Wall Street.
“I think it’s testing the waters,” he said. “They’ve yet to really make a public announcement.”
However, Slawsby said, the move “sounds like it has some very interesting possibilities.”
Palm, along with other PDA makers, has suffered through several months of extremely sluggish device sales. The company recently halved its revenue expectations for the coming quarter-as did Handspring Inc., the No. 2 PDA vendor and Palm’s chief rival. Both companies blame the economic slowdown, as well as inventory problems and aggressive pricing wars between the two companies.
Slawsby said breaking Palm up would free the operating system business from the sluggish manufacturing segment, which is dragging the company down. PDAs are quickly becoming a commodity, he said, and Palm will need to find a better source of revenue to continue growing.
But before Palm can do that, it must first shift its revenue mix from its device side, which accounts for the vast majority of Palm’s earnings, toward the operating system and software side. This is a move that Palm executives have said is an important part of Palm’s strategy.
But the software and operating platform business also faces challenges, analysts agree. Microsoft Corp.’s Pocket PC operating system-lead rival to Palm’s OS-has made significant headway in the area, and is considered more advanced than Palm’s offering. In addition, Microsoft’s OS is thought to be more attractive to the lucrative business market, whereas Palm is targeted more to the consumer market.
While breaking the platform business from the device side might be a good move for Palm in the future, many industry watchers agree the company also needs to improve its situation today. Palm, which was once a Wall Street favorite with stock prices near $100 per share, has watched its stock fall to an all-time low of less than $5 per share. Production mishaps and pricing wars, along with a dragging economy, have stymied the company’s growth-sparking rumors that the company was ripe for takeover.
However, according to printed reports, Palm’s Chief Executive Officer Carl Yankowski said last week that no buyers had yet approached the company and that it was not in danger of running out of cash. PDA market watchers are eagerly awaiting Palm’s quarterly earnings report for more detailed information.
