Carl Yankowski has his hands full. Three months
into the job as chief executive of Palm, he is about
to take the company public -- and transform it into
the Microsoft of the mobile information devices age.
The new Palm dreams of
becoming as much a software
company as a producer of
handheld "assistants," even
though it's known mainly for
the flashy computing devices
that technology aficionados
and time-pressed business
executives stuff into their
pockets.
So far, Palm has won
hands-down in the handheld
arena, trouncing primary rival
Microsoft (Nasdaq: MSFT) easily in its race to build a
dominant position in the white-hot field of personal digital
assistants (PDAs).
But now the company, in spinning off from 3Com
(Nasdaq: COMS), is staging an information-age land
grab. It wants to provide wireless Internet services for both
consumers and corporate customers, build electronic
commerce and mobile portal services for Palm devices
and others like it, and expand globally.
But Yankowski and Palm also have their sights set on a
Bill Gates-like idea: Establish its operating system as the
OS of choice for any kind of handheld device, from
phones to audio devices and game machines.
And, right now, Palm has a head start. It has licensed the
Palm OS to several of the world's top mobile electronics
manufacturers, including IBM, Motorola, Nokia,
Qualcomm and Sony.
Will Palm -- and
handhelds in
general -- someday
rule the tech
world?
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Changing a company that derives 99 percent of its
revenue from hardware into a company that thrives on
licensing software to others is no walk in the park. There
will be manufacturing customers to mollify, constant
consultations on refinements and improvements that
might not help its own manufacturing efforts -- not to
mention the constant threat of Microsoft breathing down
its neck.
"It's going to be an interesting transition. They've done a
lot of strategic deals that could hurt them in the short
term," said Patrick Houghton, head of technology
research at San Francisco-based investment firm Sutro &
Co. "But the Palm management team realizes that the
big opportunity will be as an operating system vendor
rather than a PDA vendor."
The PDA eggshell?
It's obvious why Palm wants to crack out of its PDA
eggshell: The market opportunity for handheld organizers
is expected to remain much smaller than for all wireless
devices.
The Yankee Group anticipates there will be 597 million
wireless phones sold worldwide in 2003, compared with
14 million PDAs.
Analysts expect many of
those wireless phones to
have both Internet access
and personal information
functions, such as the
NeoPoint 1000 smart
mobile phone -- which
today doesn't use Palm
technology.
Yankowski will have to
teach his company to
walk a tightrope -- and fast. It will have to ramp up two
businesses basically from scratch -- software licensing
and wireless Internet services -- while not taking its eyes
off the hardware business that has enabled Palm to
define what handheld computing ought to be.
As if that weren't a tall enough order, Palm will have a
built-in conflict of interest. If it continues to build handheld
devices and license the software that runs it, it will be
serving two masters: itself and other hardware makers
that compete with it. It would be as if Microsoft not only
licensed its Windows software to PC makers, but also
made PCs itself.
So far, Palm hasn't shot itself in the foot. But one of its
main rivals emerging in handheld assistants is a
company called Handspring, which licenses the Palm OS
and just happens to be founded by the same people who
created Palm in the first place.
Separate destinies
Whether Yankowski and company are up to the task
remains to be seen. The broadened vision for Palm
predates his arrival. And the fact that 3Com even owns
Palm is almost an accident. 3Com wound up with Palm,
then known as Palm Computing, when it bought modem
maker U.S. Robotics in 1997.
Until recently, the Palm division was treated as a
hardware product line like the rest of the company. Now
the two companies can pursue their separate destinies
as hardware and software companies independently.
"It's great for Palm to be out from under the 3Com
behemoth," said Bob Egan, research director for mobile
and wireless at GartnerGroup.
Will Palm successfully pull off its ambitious new
mission? Wall Street so far is bullish. Based on Palm's
initial expected pricing of $14 to $16 per share, the
company was to have a market capitalization right out of
the gate of roughly $9 billion -- and that was before the
IPO price was doubled on Monday. If it gets an "Internet
valuation," Palm could even end up with a valuation triple
that.
It also gets to pocket more than $320 million from its
initial public offering (IPO), to fund expansion. In addition,
Palm will receive $225 million from America Online,
Motorola and Nokia, each of which has agreed to
purchase a 1.5 percent stake in the company, according
to filings with the Securities and Exchange Commission.
IPO to fuel expansion
That will help Palm expand its sights and acquire
technology companies to further its software and services
thrusts.
Andrew Seybold, a mobile industry consultant and
publisher of the Outlook newsletter, said Palm will
probably first look to buy companies that will deliver
wireless Palm.net services to corporate users, such as
access to e-mail and other company data.
Perhaps more
important, Seybold said,
Palm's IPO also will
help it recruit the best
engineers and
executives in the field
because it finally will be
able to offer attractive
stock options.
Palm, which currently
has more than 650
employees and expects
to hire a significant
number of people this
year, has reserved 25.5 million shares for employee stock
plans, according to its filing.
"In Silicon Valley, you can't attract good talent if you don't
have stock options," Seybold said.
Next page / (Part 2:
Tapping new blood)
See also: Computing section |
