Palm's acquisition of Handpsring will give the company valuable wireless technology and expertise for the smartphone market, particularly in Europe, according to industry observers.
Canalys, a London-based analysis firm focused on mobile devices, said that the stock-based acquisition, announced late on Wednesday, will have little short-term impact on the handheld computer market, because the two companies' product lines have almost no overlap.
Palm is the market-share leader for handheld computers, and is concentrated on data-oriented handhelds for the consumer and enterprise markets. Handspring initially became known for its Visor handhelds, but in recent months has shifted its strategy to the Treo line of smartphones.
The Treo technology could fill an important gap with Palm: wireless technology, and particularly expertise with devices that use GSM and GPRS, the mobile phone standards used in most of the world for voice and data communications.
"Handspring's move into smartphones was a brave and potentially very lucrative decision, but it didn't really pay off," said Andy Buss, senior analyst with Canalys. "This acquisition means that Handspring doesn't go bankrupt, and it means that Palm acquires that wireless technology and experienced engineers."
While the bulk of Palm's sales are in the consumer market, with low-cost devices such as the Zire, the company is in the midst of a long-term strategy of wooing enterprise IT buyers and hardware makers with its Tungsten line, which includes the GSM/GPRS Tungsten W. The Handspring acquisition could add steam to this programme, Buss said.
"Palm is attempting to go upmarket, and this helps them with that. It gives them access to a lot of technology Handspring has developed around GPRS communications. It gives them the ability to go into the enterprise and cover their needs," Buss said.
A recovering handheld market
Shipments by both Palm and Handspring have been stagnant or falling in the EMEA (Europe, the Middle East and Africa) region for the past three years, according to Canalys figures. Palm shipped 1.3 million devices in 2000, but only about 928,000 in 2002, while Handspring shipped about 117,000 in 2000, about 197,000 in 2001, and 121,130 in 2002. The sluggish sales has been partly due to an overall slump in the handheld market, but the market has stabilised in the first quarter of this year, Canalys said. Palm shipped 226,500 devices in EMEA in the first quarter, compared to Handspring's 19,810. Handspring has a more mature GSM/GPRS line than Palm, Buss said, and has been selling the Treo in Europe since its introduction. By contrast, the Tungsten W was introduced only this year, and has yet to get much publicity in Europe. Handspring has sold the Treo largely through mobile phone operators, and has racked up a number of operator deals in Europe, including operators mmO2 and Orange in the UK. Those deals will come in handy for Palm, Buss predicted. Hard work ahead
The combined company will have its work cut out in carrying the Palm OS platform forward and extending it into more lucrative markets, according to Canalys. Microsoft has been busy signing up licensees for its Windows CE-based mobile operating systems, such as Windows for Smartphones and Pocket PC, while most major mobile phone makers have now signed on to make smartphones based on the Symbian OS. In the mean time, the number of Palm OS licensees has been falling, with Handera recently cutting off its Palm OS line. After the acquisition, Palm and Sony will be the only two companies with a significant Palm OS programme, although PalmSource, which looks after the Palm OS, is actively recruiting more licensees, Buss said. The Palm OS doesn't yet have the enterprise cachet to match Windows, either, he said. However, that could all change. "If Palm can accelerate its next-generation OS, get a couple of significant licensees, and come up with a few innovative applications, it is well positioned to retake the market," he said. "And don't forget that today the handheld market is dominated by consumers, and that's where Palm is strong."