Where next for Palm

Once the darling of the PDA and the smartphone business, Palm has been finding it tough in an increasingly competitive and commoditised market for mobile devices, illustrated by the axing of its Foleo companion computer product.

With its Palm OS software falling in popularity and delays in launching the version, what can Palm do to maintain its place in the market, and is it likely to become the next takeover target in the phone industry?

By Simon Brew, 26 Oct 2007 at 16:13

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It really shouldn't be like this. In a marketplace where the smartphone and the portable device are booming, the instigator of the market is simply struggling to cope. At the start of October, Palm posted a quarterly loss of $840,000 (£420,000), a hefty turnaround from the same quarter twelve months ago when a $16.5 million (£8.23 million) profit was banked. And, worryingly, many believe that the firm is ill-equipped to turn this situation around.

But then, for Palm, it's not been a very good year. Ironically, it's been exposed as lacking the sheer level of vision that it exerted back in 1996 when it launched the very first PalmPilot, and instead has had to contend with problems of its own making, along with far more innovative competitors. So while Palm has recently launched two new smartphones, they'll be going head to head with the likes of the latest BlackBerrys and the Apple iPhone. And out of those, which is the one you've seen on the front cover of lots of magazines recently?

Increase

What's particularly eye-opening is that Palm's recent quarterly loss came off the back of an increase in smartphone sales. The firm sold 21 per cent more smartphones than they did at the same point last year, although this translated into a 12 per cent increase in revenue for that particular division of the company. Given the market migration away from straight PDAs to more versatile smartphones, it's understandable that this market segment is showing growth, but what will worry analysts is the price erosion that's taking place, and the unimpressive amount of a growing pie that Palm has snared for itself.

The smartphone sector has, granted, already proven to be a more competitive market space than that for PDAs, and as a result - with the exception of some high-end, higher-profile devices - margins are beginning to be squeezed. Yet volume is clearly there, and with the market for smartphones up by 50 per cent, it's generally been considered a disappointment that Palm hasn't managed to grow that area of its business further. Palm would contest that plans are afoot to capitalise on the growing market in the coming years, but in the meantime, competitors are cashing in.

Innovation is, however, the other area where Palm has been caught short. Given the head start that the company had over the competitors it now trails - Palm had a good three year lead on the Blackberry, for instance - it's been surprisingly caught short over the past year or two.

Initiatives

Of course, Palm has tried to kick-start some initiatives and product launches of its own, but little has been forthcoming. Most notably, it had to backtrack on its Foleo smartphone companion earlier in the year. Announced in May of 2007, the firm claimed that the Foleo - a smartphone companion that boasted a 10" screen and full keyboard - would be, according to Palm's founder Jeff Hawkins, the "first product in a new line of solutions that will redefine how people work while away from their desks".

Primed with a selling price of around $500 (£250), along with talk of widespread support and a platform to which features could easily be added, initial interest in what was to be the first in a new line of mobile Palm products was high. Yet just over a week later, a Gartner analysis criticised the device, arguing that the Foleo was too big, and was going against the trend in the market where portability was proving to be key. Eventually, in September, Palm chief executive and President Ed Colligan confirmed that on the eve of its launch, the Foleo was being canned. Instead, Palm shifted personnel over to the development of its operating system platform, although Colligan did express a desire to launch a Foleo II at some point in the future.