The personal digital assistant and wireless data device markets shook last week under a series of major announcements that served to puzzle, jar and-in most cases-hearten Wall Street and the wireless industry.
The handheld computing industry has suffered through the past year along with the rest of the economy with flagging sales and overstocked inventories. Many hope next year will breathe new life into the industry with an increase in corporate spending and the rollout of integrated wireless devices running over advanced networks.
Palms seems to have taken the brunt of the damage this year, suffering through a series of financial setbacks that have left investors callous and bitter. The company’s stock is down from a high of almost $100 last year to about $3 per share today. However, during its quarterly conference call last week, Palm’s new management team acknowledged the company’s failures and promised to get things back on track.
“We simply did not innovate enough,” said Eric Benhamou, the company’s new chairman and chief executive officer, echoing perhaps the loudest criticism leveled against Palm. However, “we have regained a good measure of control over our business,” he said during the company’s quarterly conference call. The company’s net loss for the quarter was $37 million and its net income was $27 million, while revenues were up by $77 million from the previous quarter.
Benhamou said more than 70 percent of Palm’s management has been replaced in the past several months-Benhamou himself replaced the company’s former chief executive officer Carl Yankowski only last month. In addition, Benhamou said the company recently finished a complete restructuring of its supply chain and has regained control over its inventory.
Perhaps the most significant and encouraging news to come from Palm is a set of milestones and a timetable, the lack of which has led to heated criticism. Benhamou offered the schedule so investors could track the company’s progress and then hold it accountable for delays.
Palm said it would introduce a data-only wireless integrated PDA working over Cingular Interactive’s Mobitex network by the end of February. While other PDA companies have moved ahead with wireless device plans, Palm delayed the release of its integrated wireless device to the consternation of investors and analysts. Palm executives wouldn’t comment on the specifics of the device but it likely will look like the i705 device that was inadvertently posted on the Federal Communications Commission’s Web site in September.
“We have a very strong commitment to wireless,” Benhamou said.
“They need to get something out,” said Tom Sepenzis, an executive director at CIBC World Markets.
Further, Palm said it would release a behind-the-firewall corporate server for wireless access to enterprise information in the next six months. That product will likely draw from server technology Palm recently gained through its acquisition of ThinAirApps Inc. Palm executives again refused to discuss specifics, but the product will likely face stiff competition from Research In Motion Ltd., which has been offering a similar product for several years now. Palm also said it would release a new version of its operating system in the next six months, a move Palm likely had an eye toward when it acquired Be Inc. for $11 million in August.
“Palm desperately needs to update the OS,” said Jessica Figueras, an analyst with Ovum. Figueras said Microsoft Corp.’s Pocket PC 2002 OS release in October only served to put further pressure on Palm to upgrade its own operating system. The OS battle between the two companies is becoming so heated that Palm’s Benhamou cited Microsoft as Palm’s single major competitor.
Further down the road, Palm executives said they plan to release an integrated wireless device running over Texas Instruments Inc.’s new ARM-based OMAP processor platform, thanks to a deal between the two companies announced last week. Palm’s deal with Texas Instruments also fueled speculation that TI was behind the unnamed $50 million investment in Palm made earlier this month. The OMAP-based device, which also could feature Bluetooth and 802.11 connectivity, will be released by the end of next year, Palm said. Analysts applauded the move, but warned against Palm’s intent to support its other processor partners Intel Corp. and Motorola Inc.
While most of Palm’s news last week served to raise hopes, the company did face a potentially damaging court ruling over its widely used Graffiti handwriting-recognition technology. A U.S. district court decided the technology infringes on a patent held by Xerox Corp. Palm said it will appeal the ruling and that the litigation will not affect its business strategy nor that of its licensees.
RIM news
Research In Motion Ltd. too last week sought to cheer investors with its quarterly earnings report and promises for the coming year, and the company also announced a major deal that will take it into uncharted but potentially lucrative waters.
RIM signed an agreement with Nextel Communications Inc. to make its popular BlackBerry wireless e-mail devices for the carrier’s packet-data iDEN network. RIM executives pointed to the merits of the relationship, as both Nextel and RIM are almost exclusively focused on selling wireless services to the corporate market. While details of the Nextel deal were not disclosed, RIM executives hinted that it will likely entail selling hundreds of thousands of units.
RIM currently sells BlackBerrys in the United States working over the data-only networks of Cingular Interactive and Motient Corp. The company has a variety of deals to sell BlackBerrys working over packet-data GPRS networks in the United States and Europe, and British wireless giant mmo2 has already started selling the GPRS devices. During its quarterly conference call, company executives also hinted RIM is also looking to make CDMA 1xRTT-based devices and is negotiating distribution deals with Asian carriers.
Separately, RIM reported its third-quarter results, showing a net loss of $6.3 million and a net income of $1.5 million. The company lowered its expectations for the fourth quarter due to the slow rollout of GPRS networks worldwide, but expressed confidence in its long-term future.
Handspring financing
Not to be left out of the mix, Handspring Inc. announced plans to raise up to $38.5 million in a public stock sale and a $10 million investment from CDMA giant Qualcomm Inc., moves the company said would help it fund capital expenses and possibly acquisitions of “complementary businesses.”
Handspring said it will offer 7 million shares at $5.50 per share.
A company spokesman said Handspring had planned to release a CDMA-based device in the next 12 months, and the Qualcomm investment didn’t change those plans. Handspring currently offers CDMA phone capabilities for its devices through a Springboard attachment.
As PDA and wireless device companies jostle for position in expectation of increased sales next year, some are betting the market won’t grow as quickly as is hoped.
In its “Worldwide PDA Markets” report, eTForecasts predicts slower future growth rates in the 20- to 30-percent range, with 50 million units sold in 2006. The market research firm also predicts Palm will retain the top spot in the operating system market over the next five years, but just barely.
