Carl Yankowski Is Under Pressure To Turn the Ailing Palm Around
By PUI-WING TAM
Staff Reporter of THE WALL STREET JOURNAL
SANTA CLARA, Calif. -- Six months ago, Palm Inc. was riding high. The company, which jump-started the nascent hand-held computer industry with the Palm Pilot in 1996, was recording double-digit sales and profit growth each quarter. Competitors such as Microsoft Corp. seemed to be left in the dust, and some bullish observers predicted that Palm would become the Microsoft of the hand-held world.
How fast the tech tables can turn.
In late March, Palm said it had been hit by the economic slowdown. Saddled with stacks of unsold pocket computers, the company projected a surprise loss for its fiscal quarter ended Friday. Seven weeks later, Palm disclosed that production delays of its new flagship devices, the Palm m500 and m505, would lead to a quarterly loss twice as wide as expected.
Palm's share price has plunged 78% this year, scotching its planned acquisition of Extended Systems Inc., a Boise, Idaho, provider of wireless technology, which was supposed to help further its inroads into corporate markets. Palm is expected to take a $300 million charge to write off excess inventory in the quarter just ended.
Now, analysts say, Microsoft and others have a golden opportunity to capitalize on Palm's mistakes. Indeed, analysts consider Palm a potential acquisition target, and some even worry that it could run out of cash by year's end.
"We believe that Microsoft will eat into Palm's lead at an accelerating rate," says Charlie Wolf, an analyst at Needham & Co. in New York. "As Palm's recent actions demonstrate, a poorly executed strategy has the potential to destroy the best economic landscape."
Palm Signals Plans for More Layoffs, Taps New COO for Solutions Group (June 1)
Hand-Held Computer Maker Palm Warns of Weak Revenue in Quarter (May 18)
In response to its downturn, Palm announced its first-ever layoffs, cutting about 300 jobs last month. On Friday, the company said it would make a further, unspecified reduction in its 1,700-worker ranks. But it also had a bit of good news: It said the pace of its business is improving, boosted by its new models, and that it had named former Gateway Inc. operations chief Todd Bradley to serve as a top executive, effectively acting as chief operating officer. Its stock gained about 10% on the announcements Friday, closing at $6.19, up 56 cents, in Nasdaq Stock Market trading.
But some believe Palm isn't home free. One key misstep, these skeptics say, came when the company announced the m500 and m505 devices two months before they were ready, prompting some customers to stop buying Palm's older products.
"Palm's management is under the gun to prove they should even be at the company," says Rob Cihra, an analyst at ABN Amro in New York. "And ultimately, the buck stops with their head guy. Will the same management team be in place in a few months? Maybe, maybe not."
Palm's chief executive, Carl Yankowski, said he isn't going anywhere and intends to put Palm on the path to profitability. "I think I'm up to the challenge," the burly, 52-year-old Mr. Yankowski said in an interview Friday. "I was externally focused before and now I'm internally focused. We know we need to improve our management talent and processes." Added Eric Benhamou, chairman of Palm's directors, "Carl definitely has the full support of the board."
Recently, Mr. Yankowski, formerly a top executive at Reebok Corp. and Sony Corp., has issued a string of mea culpas. In April, he visited investment-fund managers and other shareholders to reassure them of Palm's business strategy. At an investment analysts meeting that same month, he declared he wasn't "blaming the economy for everything" and added "we're not just standing around." Internally, Mr. Yankowski has put on a brave face. "Let's out-execute the plan and out-innovate the competition," he urged employees at an all-hands meeting in mid-May, according to people who were there.
Now, the Palm CEO is getting more involved in day-to-day operations, these people say. Mr. Yankowski has been regularly attending meetings of Palm's operations council, the main internal body through which operations are conducted. And he has pruned management ranks. Among the recent departures: Byron Connell, vice president of product marketing, and Peng Lim, vice president of world-wide product development.
With Friday's hiring of Mr. Bradley from Gateway, Mr. Yankowski has retained an experienced operations executive. Mr. Bradley, 42, was a respected manager at the personal-computer maker and orchestrated Gateway's sales alliances with companies such as rent-to-own operator Rent-Way Inc. He has an extensive background in Europe with Gateway as well as with A.C. Nielsen and FedEx Corp.
But Gateway founder Ted Waitt removed Mr. Bradley and six other senior executives earlier this year after the company's expansion in the business-PC and international markets struggled and the company was caught by a sudden slowdown in consumer sales.
A graduate of the Massachusetts Institute of Technology, Mr. Yankowski previously worked for large consumer-brand businesses such as General Electric Co. and PepsiCo Inc. He is known for his marketing skills: While at GE, he worked on the "We Bring Good Things to Life" campaign; and at audio electronics maker Memorex, he helped develop the "Is it live or is it Memorex?" campaign. In 1993, he joined Sony Electronics as its president and chief operating officer.
When Mr. Yankowski arrived at Palm in late 1999, he was largely unknown in Silicon Valley. "Carl really doesn't come from the industry," says Pat McVeigh, chief executive of OmniSky Corp., a San Francisco provider of wireless Internet access for hand-held devices.
Still, Mr. Yankowski quickly won praise from the investment community for setting a new strategy for Palm, positioning the company as a provider of wireless hand-held "solutions" -- packages of software and hardware -- instead of just a device maker. "Carl was initially a breath of fresh air for Palm," says Jeff Van Harte, a fund manager at Transamerica Investment Services in San Francisco.
As the company reported huge leaps in revenue and profit growth last year, the CEO worked to cultivate a rah-rah corporate culture, say several staffers. In early 2000, Mr. Yankowski held a meeting at Palm's cafeteria, gathering the company's then-900 employees. There, he exhorted the crowd to congregate in the middle of the room for a group high-five session.
But colleagues say Mr. Yankowski didn't involve himself much in day-to-day operations and so wasn't on top of delays in production. When he took the helm in late 1999, one of his early actions was to make room for two chief operating officers: Alan Kessler, previously Palm's president, and Barry Cottle, a former Walt Disney Co. executive. The unusual move, Mr. Yankowski explained, would help free him up to focus on big-picture strategy. But both men changed jobs in March in a companywide restructuring. Mr. Kessler became the general manager in charge of Palm's platform business, while Mr. Cottle was named Palm's chief Internet officer.
Last year, at the behest of Mr. Yankowski and under the direction of Chief Financial Officer Judy Bruner, top Palm executives created an operations council so there would be a point of coordination for company activities. Mr. Yankowski appeared at the council's meetings from time to time, some people say, but his participation didn't increase until Palm's problems surfaced. Mr. Yankowski says he was regularly briefed by Ms. Bruner on the operations council's activities.
"Ultimately, Carl overfocused on new product and underfocused on operational areas," says Mr. Van Harte of Transamerica.
-- Gary McWilliams contributed to this article. |
