Palm, Inc. Business Information, Profile, and History

Company Perspectives:

Palm, Inc. is a leader in mobile computing and strives to put the pow er of computing in people's hands so they can access and share their most important information. The company's products for consumers, mob ile professionals and businesses include Palm Treo smartphones, Palm LifeDrive mobile managers and Palm handheld computers, as well as sof tware, services and accessories. Palm's products are equipped with a comprehensive suite of Personal Information Management (PIM) software , infrared beaming capabilities, calculators, note-taking application s, and games. A range of additional features, including hi-res color screens, wireless capabilities (Bluetooth, Wi-Fi, cellular), MP3 soft ware and digital cameras, ensures that there's a Palm product to meet almost any user's needs.

History of Palm, Inc.

Palm, Inc. is a leading producer of handheld computing products. The company that led the market for personal digital assistants (PDAs) ha s adapted its offerings to be ever more handy. After acquiring rival Handspring, Inc., Palm inherited a top product, the Treo. The company spun off its software unit in 2003, and in 2005 entered separate dea ls to license software from rivals Microsoft Corporation and Research in Motion Ltd. (RIM) to counter competition from RIM's Blackberry an d a slew of competitors from the mobile phone and computer industries .

Silicon Valley Origins

Palm Computing, Inc. was established in January 1992. Its founder, Je ff Hawkins, was formerly vice-president of Grid Systems Corp. and was credited with designing that company's line of pen computers. Presid ent and COO Donna Dubinsky was a cofounder of Claris Corp.

Tandy Corporation sponsored Palm Computing's first product: the Zoome r (marketed as the Casio Z-7000 and the Tandy Z-PDA) handheld device that was developed in cooperation with Casio Computing Inc. Three Cal ifornia venture capital firms also backed the company.

Palm soon introduced add-on software for connecting Zoomers to PCs. O ther early products were the PalmPrint and PalmOrganizer devices base d on the Geos operating system developed by Geoworks of Alameda, Cali fornia. Sharp used these technologies in its PT-9000 handheld pen tab let machine.

In 1994, Palm began marketing itself as a third-party developer for o ther makers of handheld computing devices, extending beyond the Geos operating system. Three other platforms were under consideration: App le's Newton Intelligence, Microsoft's WinPad, and General Magic Inc.' s MagicCap.

In September 1994, Palm debuted its Graffiti handwriting recognition software. Until that time, users of personal digital assistants usual ly entered information by choosing selections on a tiny screen with a little plastic stylus. Adding any kind of practical keyboard would m ake the devices too large to carry in one's pocket. Apple's Newton al ready had a limited handwriting recognition capability, but Palm's Gr affiti could be used for taking notes or sending e-mail. It boasted 1 00 percent accuracy and a speed to rival typing. Graffiti required us ers to modify their handwriting somewhat, omitting, for example, the cross bar in the letters "A" and "F" and writing the letter "L" in mi rror image. Palm claimed the system could be learned in 20 minutes an d mastered in a couple of hours. Palm offered the software for the Ne wton, Magic Cap, and other PDAs. Giant modem manufacturer U.S. Roboti cs, based in Skokie, Illinois, acquired Palm in September 1995 for 36;44 million. Palm was based in Los Altos, California.

A New Pilot in 1996

Palm introduced its new, simplified PDA, called the Pilot, in the spr ing of 1996. Rather than attempting to stand alone as a computer, the Pilot was designed to easily and quickly exchange information with a PC. It sat in a cradle that was plugged into the desktop computer.

According to Time, venture capitalists in Silicon Valley doubt ed users would buy a device with as few features as the Pilot offered . However, the very key to the Pilot's success was its Zen-like simpl icity. While designing it, Hawkins carried an uncarved block of wood in his shirt pocket for months, tapping on it while deciding the key features the Pilot needed. Eventually, four functions emerged: a cale ndar, address book, to-do list, and memo section.

The tiny new device measured just 4.7 inches long, 3.2 inches wide, a nd 0.7 inches thick. It used ubiquitous miniature flashlight batterie s that lasted for months. The basic Pilot 1000 retailed for $299, half the price of a Newton. It could hold 500 addresses and 600 appo intments. The Pilot 5000 had four to five times the memory and sold f or $369.

It took a few months for the Pilots to catch on, but soon they were a ppearing all over. Palm shipped more than a million of them in their first year and a half, a faster launch than Sony Walkmans, pagers, an d mobile phones. They certainly outsold all other PDAs. The GridPad t hat Hawkins had designed nearly ten years earlier was simply too big. The expensive Apple Newton failed in the mass marketplace. The Sharp Wizard and the Hewlett Packard 200LX were limited to tiny niches of gadget enthusiasts.

In the face of Palm's success, Microsoft rushed out its Windows CE 1. 0 operating system in its haste to dominate yet another market. The u nits that used it, equipped with tiny keyboards, offered more feature s than the Pilot but were difficult to use. They failed to threaten P alm's position; the company controlled two-thirds of the handheld mar ket at the end of 1997.

New Competition and New Ownership in Late 1990s

Microsoft released its updated CE 2.0 software in November 1997 and c alled its new handhelds "Palm PCs," quickly landing it in court for a lleged trademark infringement. Seven companies, including Casio and P hilips, allied with Microsoft in developing their own feature-packed handhelds running the CE 2.0 operating system. They generally proved more complex to use than the Pilot. (Palm soon began referring to its devices by company name and model number.)

Palm continuously updated the Pilot's design. It introduced a modem f or it in 1997. However, its software was not well received and third party developers moved to quickly fill the void. The Palm III was int roduced in March 1998. It could exchange information with other Palm IIIs via a wireless infrared transmission. Time magazine docum ented the phenomenon of strangers swapping video games, contact infor mation, and subway maps by this "beaming." Other new features include d refined styling, a protective lid, and more memory.

Palm kept its own offerings relatively simple, leaving 5,000 outside parties to develop software and hardware add-ons. Users could now lin k with the Internet, corporate networks, and pagers. The Palm III sol d for $399. Wireless modems (supplied by Novatel, JP Systems, and Metricom) sold for $350-$400 and doubled the size of the uni t.

3Com, based in Santa Clara, California, had acquired U.S. Robotics in June 1997. 3Com manufactured networking adapters and switches. With sales of $570 million Palm accounted for nearly 10 percent of 3Co m's revenues in the 1998/99 fiscal year. 3Com CEO Eric Benhamou saw t he unit as the centerpiece of a revitalized 3Com, according to the Wall Street Journal. In fact, although Dubinsky claimed it attra cted little interest at the time of the acquisition, Palm Computing e merged as the best part of the merger with U.S. Robotics, which had l eft 3Com with massive excess modem inventories and other difficulties in combining the two product lines.

Dubinsky and Hawkins left 3Com in 1998 because it would not spin off Palm as a separate company. They formed Handspring Inc. and used lice nsed Palm software in their own, lower-priced device, called the Viso r, which was introduced in September 1999. It featured a slot for eff ortlessly adding a variety of hardware modules, such as digital music players and cameras. (PalmPilots did have a serial port for adding p eripherals.)

By this time, Palm held an 85 percent market share, and was aggressiv ely licensing its proprietary Palm OS operating system. Computer R eseller News reported that Microsoft had turned its attention tow ards secondary functions beyond organizing data, such as playing musi c clips and video games.

The new Palm VII arrived in 1999. The handy organizer had morphed int o a full-time wireless telecommunications device. It was priced at 36;599, plus an additional monthly fee ($10-$40) for Palm.net service based on usage. Although its tiny screen could not display a ll the contents of a typical web page, Palm had lined up more than 1, 000 Internet content developers willing to accommodate the Palm VII.

Compaq Computer Corporation unveiled another lower-priced competitor, the Aero 1500, in September 1999. Hewlett-Packard Co.'s Jornada 430, priced the same as the Palm VII, debuted the same month. The Jornada featured a color screen.

3Com picked a new CEO for Palm in December 1999: Carl J. Yankowski, h ead of the Reebok Brand athletic shoe division of Reebok Internationa l Ltd. He also had experience with Sony Corporation, PepsiCo, Inc., P olaroid Corporation, and General Electric Co.

Palm controlled 70 percent of the organizer market; a few progressive corporate network administrators were buying PalmPilots by the hundr eds. Sales were growing 65 percent a year. Organizers still accounted for 99 percent of revenues in spite of the emphasis the company was making on licensing its software to other companies, such as America Online Inc. and Motorola Inc.

Qualcomm Inc. and Nokia used Palm OS in their most advanced mobile ph ones. However, Palm saw smarter mobile phones as the company's second biggest competitive threat after Microsoft. Nokia was also a member of the Symbian consortium, which was developing its own operating sys tem for wireless Internet devices. Handspring and Telefon AB L.M. Eri csson were also members of this effort.

In this rapidly changing industry, competitors often had to cooperate . For example, Palm's organizers were designed to work with the Windo ws-based programs running on PCs. Palm's struggles and victories were cited by opposing sides at the Microsoft antitrust trial.

2000 IPO

Palm Inc.'s IPO in March 2000 displayed high-tech speculation at its most febrile. Priced at $38, shares reached $165 each before closing at $95, giving Palm a market valuation of $53 billion --more than that of General Motors and McDonald's, and more than that of its parent company, 3Com, valued at $28 billion. At the time 3Com still owned 94 percent of Palm's stock; however, in July it comp leted the distribution of its remaining shares to stockholders.

A revamped Microsoft operating system appeared in a series of Pocket PC devices launched by Hewlett-Packard, Compaq, and Casio in April 20 00. The Pocket PC enjoyed a sleeker design than the somewhat boxy Pil ots. According to the Wall Street Journal, independent program mers who developed Palm-based software remained intensely loyal, ofte n refusing to adapt applications for the rival Windows CE systems. Pa lm claimed to have 70,000 third-party developers registered in the mi ddle of 2000, up from only 3,000 at the beginning of 1999. Many of th ese had modest operations, some distributing their programs over the Internet as shareware. In contrast, Microsoft had licensed 200 compan ies to work on Pocket PC programs; many were larger companies.

Revenues in the last quarter of 1999/2000 were more than double those of the previous year. Suppliers of display screens and memory had di fficulty keeping up with ever accelerating demand. A few faulty memor y chips were allowed into production; Palm offered a software fix. Fu ll-year sales exceeded $1 billion.

2001 Slowdown

Boosting its wireless Internet services, Palm bought AnyDay.com, whic h produced Internet-based calendars, in June 2000 for $80 million in cash and stock options. It had also bought e-mail provider Actual Software Corp. Palm planned to offer expansion slots in its organize rs by early 2001, an area where it lagged behind Visor and Pocket PC devices. Personal electronics powerhouse Sony was preparing to introd uce its own PDA.

In a race to develop more advanced features in a shrinking market, Pa lm and its rivals were buying companies for their technology. Palm bo ught several over the year. It acquired Portland wireless-synchroniza tion expert WeSync for about $40 million in late 2000. Handspring , Inc. made its first acquisition, picking up Bluelark Systems Inc. o f Mountain View, California, in a $16 million stock swap. Bluelar k made Internet tools for handhelds.

These purchases were not able to forestall a collapse in the handheld computer market in a slowing economy. A two-months premature announc ement of the company's new m500 and m505 models did not help sales of units already in stores.

As Palm's share price began to evaporate, it had to cancel a plan to acquire Boise's Extended Systems, Inc., a wireless technology produce r for the corporate market, for $264 million in stock.

In May 2001, the once high-flying Palm laid off employees for the fir st time and put the brakes on a planned 11-building headquarters comp lex. As the year progressed, PDA manufacturers introduced deep discou nts to keep the machines moving.

Hoping to increase PDA use before the days of widespread wireless Int ernet, Palm provided infrared beaming stations to a wide range of par tners. PDA users at certain sites could beam relevant information at a number of kiosks, including newspaper stories and transit schedules at train stations; special offers at retailers such as Banana Republ ic; and movie listings at theaters.

Palm acquired the Be operating system of former Apple exec Jean-Louis Gassee in August 2001 for $11 million in stock. Be boasted impre ssive Internet and multimedia capabilities. The acquisition included engineering talent to bolster Palm's Platform Solutions Group. Palm h ad divided into two business units dedicated to hardware and software , respectively, in July 2001. The company was hoping the separation w ould improve operating system sales to other manufacturers. The new s oftware unit was dubbed PalmSource and led by former Apple exec David Nagel. A former Gateway exec led the hardware unit.

Not only did Palm have to deal with the familiar threat posed by Micr osoft, but there was a new threat to confront: the Blackberry, a wild ly popular handheld pager and wireless e-mail system developed by Ont ario's Research in Motion, Ltd. Mobile phone manufacturers were also edging into traditional PDA territory by adding new features to their phones.

Palm and its rivals countered the Blackberry threat by developing the ir own wireless Internet products. Handspring produced a new hybrid d evice called the Treo that could make voice calls and check e-mail. H owever, the expensive new product hit resistance from the mobile phon e networks it depended on, and Handspring, too, began losing money.

Palm was also trying to increase its presence in the corporate market by offering features such as wireless database access and high secur ity, noted the San Francisco Chronicle. Medical doctors, who a ppreciated ready access to tons of technical data, formed an importan t niche market. Palm's hardware business soon developed two main prod uct lines: the high end Tungsten brand for professionals, and the Zir e brand for new users and students.

Palm had a relatively broad range of products and leaned toward less expensive price points: a Zire sold for as little as $99. By the 2002 Christmas shopping season, its distribution had expanded to such high volume markets as QVC and Target.

2003 Spinoff

PalmSource, the company's software unit, won control of the Palm bran d as the company split into two parts, which relocated into separate headquarters in August 2002. The hardware business was dubbed the Pal m Solutions Group.

Palm CEO Carl Yankowski had resigned in November 2001; he was one of numerous executives to leave the company during the restructuring. Hi s duties were taken by company Chairman Eric Benhamou. Benhamou, a na tive of Algeria, had designed Palm's spinoff from 3Com, noted the Wall Street Journal.

In June 2003, Palm, Inc. announced it was purchasing rival Handspring in a stock swap (worth $240 million when the deal closed in Octo ber). The Wall Street Journal noted Handspring had been valued at $9 billion in its heyday. Both companies' workforces had been greatly scaled back by this time--Handspring had 250 employees to Pa lm's 800--and there were plans for another round of layoffs at the co mbined company. In October 2003, Palm, Inc. spun off PalmSource, its software unit, while the original company, which retained the hardwar e operations, was renamed PalmOne, Inc.

According to Business Week, palmOne still led the traditional PDA market with a 40 percent share, while Handspring had become a nic he player in the emerging "smartphone" market, which was exploding. H andspring's gamble on these combination devices came too early to pay off for Handspring, but would help save palmOne. The $399 Treo S martphone became a hit among gadget-rich professionals who could use it to replace their PDAs, mobile phones, cameras, and MP3 players.

PalmOne was renamed Palm, Inc. in July 2005 after it bought the remai ning rights to use of the Palm name for $30 million. The software business, PalmSource, had not succeeded in conquering the operating system market, observed the San Francisco Chronicle; Palm was still its main customer.

Still more new products were being launched. Palm introduced its Life Drive line, which featured four gigabyte hard drives, in the spring o f 2005. Later in the year, Palm signed separate deals with two of its archrivals. In September, it announced it was developing a Treo with Microsoft's operating system to help stave off competition from Rese arch in Motion's Blackberry. The next month, it announced a pact to p ut Research in Motion's wireless e-mail software on its Treo 650.

Principal Subsidiaries: Palm Comércio de Aparelhos Elet rônicos Ltda. (Brazil); Palm Europe Limited (UK); Palm Italy S. r.l.; PalmOne France; PalmOne Germany GmbH; Palm Global Operations Lt d. (Ireland); Palm Asia Pacific Limited (Hong Kong); PalmOne Ireland Investment; Palm Latin America, Inc. (USA); PalmOne Mexico S.A. de C. V.; Palm Benelux B.V. (The Netherlands); Palm Australasia Pty Limited (Australia); Palm Canada Inc.; Palm Singapore Pte. Ltd.; Palm Nordic AB (Sweden); PalmOne, K.K. (Japan); Handspring International SARL (S witzerland); Handspring International Ltd. (BVI); Handspring Facility Company LLC.

Principal Competitors: Dell Inc.; Hewlett-Packard Company; Nok ia Oy; Research in Motion Ltd.; Sony Corp.

Chronology

• Key Dates:
• 1992: Palm Computing, Inc. is founded.
• 1995: U.S. Robotics acquires Palm for $44 million.
• 1996: New PalmPilots revolutionize handheld computing.
• 1997: 3Com acquires U.S. Robotics.
• 1998: Palm founders leave to start rival Handspring, Inc.
• 2000: Palm goes public in March with a staggering opening day valuation of $53 billion; 3Com distributes all remaining shares i n Palm to its stockholders in July.
• 2001: Palm begins first layoffs in economic slowdown.
• 2003: Palm, Inc. spins off PalmSource software unit, acquires Handspring, Inc.; PalmOne, Inc. is formed.
• 2005: PalmOne renamed Palm, Inc.