Palm Promises Turnaround

Company CEO says little innovation, failure to roll out i705 led to poor past year; eyes partnerships.

Palm Inc. is hoping to make 2002 the year of the enterprise, but the success of the handheld device company lies precariously in the hands of corporate customers who have a lot of choices these days.

Palms interim CEO, Eric Benhamou, said late last month that the company had made mistakes in 2001 but had definite plans to turn itself around this year.

"2001 was an especially difficult year for Palm," Benhamou said. "We simply did not innovate enough. You should expect a steady stream of innovative solutions from Palm in the months ahead, starting with several major new products to begin shipment in the current quarter."

The Santa Clara, Calif., company has been battered by an ongoing price war with rival Handspring Inc., of Mountain View, Calif.; the sour economy; and the failure to roll out by the end of last year the long-awaited i705, which combines a PDA (personal digital assistant) with always-on push e-mail capability. Benhamou said the i705, which will be available this quarter, will be a data-only device that runs on Ericsson ABs Mobitex network technology.

Potential customers said the device is a step forward for Palm.

"Information push is critical," said Christopher Bell, chief technology officer of the People2People Group, a Boston-based media services company. "The pull style of the Palm VII just isnt good enough."

But in the time Palm took to develop the i705, competitors also created attractive choices. Handsprings Treo, a device due to the public this month, combines push e-mail, a PDA and something the new Palm lacks—a phone.

"It depends on pricing, but I suspect that if the service costs are anywhere near each other, Id pick the device with voice and data over the data only," Bell said.

To encourage sales of the wireless device, Palm intends this year to launch a full, behind-the-firewall server for enterprise customers, Benhamou said. (Last month, Palm acquired ThinAirApps Inc., a small New York company that markets such a server.)

"If this machine is priced at where Pocket PC wireless devices are, then no sales," said Ken Dulaney, an analyst at Gartner Inc., a San Jose, Calif., consultancy. If they can get the thing to $250, it will do well [but only if] they can get enterprises to put in the servers to deliver corporate e-mail."

Palm plans to align with four enterprise software companies to create wireless corporate applications. A partnership with Siebel Systems Inc. that will implement Siebels Sales Handheld 7 software was announced in October. Other partnerships will be announced by summer, Benhamou said.

Benhamou also discussed the progress of the companys plan to internally separate its platform software business into a legal subsidiary, separate from the hardware and solutions group. He said he expects an "external separation" of the software unit this year, either through third-party investments by strategic partners or through an initial public offering.