Palm sees software as key to corporate sales
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NEW YORK (Reuters) -- Having dominated the consumer marketwith its pocket-sized hardware, Palm Inc. (PALM.O) is bettingon software to help it grab the lucrative corporate market forhandheld personal devices.
With some 11 million units sold, Santa Clara, Calif.-basedPalm claims over 60 percent of the $25 billion market forpersonal digital assistants (PDA), the information managementgadgets desired by teenagers and chief executives alike.
Still, market share figures are ``irrelevant,'' particularlyat this early stage, Palm Chief Executive Carl Yankowski saidrecently. Instead, software and services will rule a futurewhen, Palm hopes, handheld devices are as ubiquitous aspersonal computers and mobile phones.
``There is great consensus among the senior management teamthat the long-term win is really a win for the OS (operatingsystem),'' Palm Vice President Jerry Jalaba told Reuters in aninterview. ``As long as Palm OS overall licensees continue togrow, we are happy.''
In a perfect Palm world, there will be a pocket-sizedcomputer in every hand, each running some version of Palmsoftware, and companies will buy them in bulk.
So far, software licensing represents a fraction of Palm'sbusiness, with substantially all revenue to date derived fromsales of devices and accessories. In a recent governmentfiling, Palm said licensing ``will represent a relatively smallportion of our total revenues in fiscal 2001.''
The Palm OS, which also runs on rival handhelds made bycompanies such as Handspring Inc. (HAND.O) and Sony Corp.(6758.T), claims a 90 percent market share. Palm's chiefsoftware rival is Microsoft Corp.(MSFT.O), whose Pocket PCsystem powers devices made by Casio and Hewlett-PackardCo.(HWP.N).
Microsoft, whose Windows operating system runs most officePCs, has already made inroads in the business markets. ButJalaba argues that Palm's advantage is its flexibility increating systems that suit individual clients needs.
``What we want to do is enable the whole economy for thePalm OS,'' Jalaba said. ``Some of those devices (sold) end upbeing Palm devices; all of them end up being Palm OS devices.''
Transition to the enterprise market
Key to this switch is Palm's expansion into enterprisesales, where corporations order thousands of devices, arm themwith in-house software powered by Palm and give them toemployees as a tool, much as they would a training manual.
Market research firm IDC forecasts that the percentage ofhandheld computers shipped to companies in 2004 will rise toabout 50 from 30 in 2001. The share of shipments to individualswill drop to 50 percent from 70 percent, but only because of arapid rise in corporate buying.
Indeed, IDC sees the total number of shipped productsgrowing to 33.6 million in 2004, more than double the 2001estimate of 14.9 million.
``Enterprises will get into gear with their mobile devicestrategies and go out and buy them, rather than letting theirusers buy the devices,'' said IDC program manager Kevin Burden.
Toward that end, Palm has actively beefed up its softwarealliances. On March 6, it agreed to buy, for about $264million, Extended Systems Inc. (XTND.O), whose products helpbind handheld computers in business environments so companiescan link in-house software through a wireless network.
And in January, Palm and drugstore operator CVS Corp. wereamong a group that invested $18 million in ePhysician, acompany seeking to make wireless handheld devices common inmedical offices as a way of tracking diagnoses and treatments.
Also, Palm's investment group, Palm Ventures, recentlyinvested in software company Kenamea, whose technology promiseto accelerate the availability of certain applications and makeit easier to extend them to Palm OS based handheld devices.
Palm device sales may become 'side effect'
For Palm, the corporate focus represents a critical shiftfrom the current model, where buzz about the handheld machineshas sparked one-at-a-time sales of Palm-branded devices.
``The real focus is extending Palm's reach throughapplications,'' said Jalaba, who is charged with planting Palm'sseed in the business marketplace. ``The side effect is that youend up selling a lot more devices, and a lot more Palm OSlicensees sell more Palm-based devices.''
Jalaba's staff works with companies to build software thataddresses a specific need, tweaking the Palm system to performcertain tasks such as updates on the actions of team members.
For example, Sears recently agreed to put in place nearly15,000 of Symbol Technologies Inc.'s (SBL.N) handheld devices,running the Palm OS, to perform in-store applications such asinventory, price change, merchandise pickup, and replenishment.
Palm's shift is critical, because they can feel the heatemanating from powerful competitors. From heavyweights such asMicrosoft and Hewlett-Packard to upstarts like Symbian Ltd. andResearch In Motion Ltd. (RIMM.O), companies are shootingbolster offerings of handheld computers and related services.
What's more, concerned investors are watching Palm closely.One year after the company's initial public offering, its shareprice, like many leading technology issues, is a mere shadow ofits Internet-boom greatness, trading it about $21.
That compares to an all-time high, scored on its first dayof trade, of $165. The stock has shed some 35 percent of itsvalue since the start of 2001.
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