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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Back then, the speculation surrounding a potential deal inevitably inflated the Palm share price, and this is believed to have put off some potential suitors. Eventually, no deal was concluded, and talk of any kind of takeover quietened down.

Since then, the world economic situation has changed. Whereas six months ago, the cost of borrowing was still relatively cheap, the changes in the world financial markets mean that things are much tougher. That, in turn, has resulted in more cautious private equity companies, who are struggling to raise funds as easily as they could have done earlier in the year.

Yet one private equity backer has, nonetheless, invested into Palm, and while it's only a partial stake, there's some who believe it's the right move for Palm at the right time. Because in September, Elevation Partners injected $325 million (£162.5 million) into Palm - with the option for Palm to borrow a further $400m (£200 million) - in return for a 25 per cent stake, and inevitably seats on the board. This gives Palm breathing room, and crucially, may help it get through the next eighteen months competitively, while Palm OS II is completed. If that operating system fails to deliver though, then starker challenges will lie beyond that, and the longer term future will be much muddier.

Long term

There's little question that Palm remains vulnerable to - and perhaps in the long term needs - some kind of deal, though. While its smartphone sales boost is encouraging, the fact that its market share is showing little improvement has to be a worry. And yet the name still carries a degree of goodwill, and Palm - in spite of its recent problems - is nonetheless an iconic brand in its market sector.

The period ahead is going to be telling, however. Elevation's investment clearly is a major help, and there's undoubted potential in the Palm business if it can reposition itself a strong competitor to the likes of iPhones and Blackberries. That in itself is an extremely tall order, and Palm quickly needs to prove that it's up for the fight if one of the more popular names in portable computing is going to continue to effectively compete.