Palm scoops up Handspring for hardware expansion

With its recently announced acquisition of Handspring Inc., Palm Inc. says it plans to focus on its software platform licensing business and beef up its line of handheld products and services.

But some industry experts question the impact the buyout will have on the Canadian enterprise, pointing out that it’s the operating system and price – not just the hardware and brand name – that make a handheld successful in the long run.

Currently, Milpitas. Calif.-based Palm is comprised of two business units: PalmSource Inc., a subsidiary responsible for developing the Palm operating system, and Palm Solutions Group, a business unit responsible for designing and marketing the company’s handheld devices. Meanwhile, Mountain View, Calif.-based Handspring is known for its Treo line of smartphones and software for handheld devices and mobile phones, which run on the Palm OS.

According to reports, Handspring will be merged with Palm’s Solutions Group and the merged company will be named later in the year. The new company will subsequently be divided into two units: handheld computing solutions and smartphone solutions. PalmSource will be spun off.

Palm has high aspirations for what the deal could mean to the handheld industry. “We view today’s announcement as having a profound and transforming affect on the structure of the handheld industry, enabling new growth opportunities,” said Eric Benhamou, chairman and chief executive officer of Palm, during a conference call.

Stephen Baker, hardware analyst with research firm The NPD Group in Reston, Va., noted that on the hardware side, the acquisition will provide Palm with a “more cohesive product lineup that addresses a lot more categories.” Both the Tungsten and the Zire have their specific targets – enterprise and consumer, respectively – and “since Palm doesn’t have products in the converged market, there is no reason to dump the Treo and start over.”

Although Palm dabbled with convergence when it introduced the Tungsten W last year, Baker said the W’s phone capabilities are “basically an afterthought – you can plug your handset into it and use it as phone, but it was not marketed and positioned as a phone. It’s more of a handheld organizer with always-on capability to do e-mail.” It doesn’t go as far as the Treo, which offers e-mail, Web, phone and organizer capabilities all in one – which is why Baker believes the Treo name is “likely to survive.”

Michael Rozender, president of broadband and wireless communication systems consulting firm Rozender Consultants International in Oakville, Ont., agreed that the buyout will “give Palm a little more positioning in the market, another product line to take over and support, and a little bit more market share.” Because of the common OS, “you’ve got the slightly orphaned Handspring owners who now have a bigger and better parent to support the lifecycle of product,” he said.

Michelle Warren, handheld analyst for Toronto-based Evans Research Corp., said despite Handspring’s advancements in the multifunction arena, the firm “pulled out of the Canadian market” in the second half of last year, with sales escalating slightly in the Q1 03, but “not enough to have its activity recorded separately from other vendors.” Overall, Handspring came in fifth place with two per cent of the market share in 2002 – not quite enough to be missed now that it’s been bought out.

Rozender emphasized, however, that the real issue is what role the acquisition plays in the “battle royale” between Palm OS and Microsoft Pocket PC. “The operating system is by far the most important [to customers] in terms of functionality and applications being run, whether it’s on a Handspring or a Palm,” he said.

The tendency to base a PDA choice on operating systems instead of brands is “true to some extent,” although there is still significant competition between brands running on the same OS, said Baker. In the greater scheme of things, Palm’s only taking baby steps by acquiring Handspring, he added. “From an OS perspective, I don’t think there will be big impact from all of this.”

Palm may still have the upper hand in the OS arena – Warren said Palm was the number one handheld OS in 2002, grabbing 80 per cent of the market share. But the fact that Pocket PC is gaining popularity, especially in conjunction with Hewlett-Packard’s iPaq, could mean “a lot of aggressive competition against the Palm OS,” Rozender said, especially after the introduction of Microsoft’s .Net platform for PDAs.

“With Microsoft being the juggernaut that it is, you can expect that the .Net Pocket PC platform will begin to be a popular one,” he added.

Warren agreed that Pocket PC is on the rise. “All of a sudden you get Dell, Viewsonic, Casio, HP on board with Microsoft – and they’re targeting corporate users…while Palm is stronger on the consumer level.”

There are committed fans for each OS, but in the end, the choice often comes down to price point. “[The customer] might love one particular brand that runs on one OS, but if the cost is better, they might switch to another,” which could play out well for Pocket PC, with Dell entering the market with its aggressively priced units, she said.

-with files from Albert Leonardo

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