Was the Palm split real? Or was it all a sham?

[Voice_of_Reason]

As I predicted a while ago, the endgame has now started. PalmSource is about to get gutted and then implode. I feel the original "split" of Palm was a sham designed to milk investors of tens of millions of dollars before the platform was due to collapse.

Evidence:

- The "split" wrote off millions in loans
- Tens of millions more were then generated with the overpriced IPO stock. Prices have subsequently plummeted, but investors paid the price
- The Palm name buyout basically burns up more (almost $30,000,000!) of investors' money by shuffling it back to PalmSource
- Looking at PalmSource's business plan, it seemed obvious from the start that they would never really be profitable as an independent company
- Since PalmSource was doomed to go bankrupt (within a year at current burn rates) it was only a matter of time before Palm/pa1mOne would be able to swoop in and buy back PalmSource for pennies on the dollar.

This is my theory and I can't prove it, but everything is already playing out EXACTLY as I said it would when the "split" was originally approved. Anyone willing to bet against me on the conclusion of the final act in this (investors') tragedy?

TVoR

[Bob Russell]

Well, TVoR, you obviously have a chip on your shoulder against PalmSource.
But the theory just doesn't hold water. The arguments made by PalmOne and PalmSource are very plausible, and there is actually much more evidence of health than disaster.

They probably should have split PalmSource away from the Palm brand in the first place, but I think it makes sense to do, so I'm glad they finally got around to it. Personally, though, I think of Palm as the OS more than the devices, so I kind of wish it had been the other way around with PalmSource keeping the Palm brand. But this was is more practical, and the cash will certainly help with the transitions into the phone markets and to Linux.

So, okay, you've made your point... you think PalmSource is going to fail and may have to be rescued by a PalmOne buyout, and it will happen within a year.

I disagree, but you're on record now with the prediction. Let's wait it out for the year and see if that's right or wrong. But please, let's not beat it into the ground. We understand you think PalmSource is a mess. But most people, even Pocket PC fans, just don't feel that way, and repetition is not going to convince us. In fact, it might even give the moderators an itchy trigger finger if you know what I mean.

[Traecer Prime]

...I can tell you the split made sense. It would have made even more sense 1, 2, or even 3 years before, but Palm was hamstrung during that period by tax laws and an overbearing corporate parent. At the time, Palm, Handspring, Sony, and HandEra were all using Palm OS, and there were rumors that Toshiba and Dell were turned away from Palm OS because Palm (the hardware division) didn't want competition from them. Regardless of rumors, it was obvious Palm was not set up as well as Symbian or Microsoft to license their OS since every new license represented a new competitor to itself. But tax laws required that the PalmOne/Source split not happen for a period of time (1 yr or 2, I forget) after the 3Com/Palm spinoff. If the PalmOne/Source split happened immediately, the shareholders faced significant tax penalties.

The problem with waiting was that the PDA market started to crater during that time. By the time it finally happened, HandEra had exited the market completely (not surprising), Handspring was looking at smartphones to save it, and Sony found itself in a world of trouble (not all of which was PDAs). The split (and simultaneous merger with Handspring) should have strengthened both resulting companies. PalmSource was finally free to license Palm OS to whomever they wanted without regard to PalmOne. PalmOne was (theoretically at least) no longer responsible for developing the software platform, and could concentrate on making the best devices. Plus, with the Handspring merger, they picked up a ready-for-production new smartphone product line. Things should have been great for the two companies. But the continuing decline (some say maturity) of the the PDA market caused sales of PalmOne's core product line to decline, and caused PalmSource's second biggest licensee Sony to finally exit the market. Lagging PDA sales have prevented new licensees from signing up with PalmSource, and their lack of a viable smartphone OS offering has crippled their potential revenue stream (frankly, though Cobalt is better than Garnet, it doesn't provide anything other smartphone OSes have). The China MobileSoft acquisition is supposed to help remedy that situation, as is Palm OS/Linux, but we'll have to wait and see how that plays out.

[derekweb]

If we can keep this civil, this would make for a hell of a great discussion.

On topic, I personally have to agree with Traecer Prime. While don't have all of the details that he does, from a business perspective, it always concerned me in terms of fair play the licensing issues surrounding Palm when they made everything as well as competed with everyone. Just seemed bad for business.

Now, assuming they can make some good business moves (both PalmOne and PalmSource) they should both be able to get out from under the technology sector funk that has currently enshrouded everyone.

The issue of why they didn't split sooner than what they did, I also seem to remember the same issue that TP brought up in his post above. There were/are rules or laws that applied to Palm at the time that would significantly adversely affect the customers/shareholders. Not a good thing. As best they could, I feel that Palm was looking out for their customers AND their shareholders. That is the right mightset to have for a company.

[Voice_of_Reason]

Originally Posted by BobR

Well, TVoR, you obviously have a chip on your shoulder against PalmSource.
But the theory just doesn't hold water. The arguments made by PalmOne and PalmSource are very plausible, and there is actually much more evidence of health than disaster.

They probably should have split PalmSource away from the Palm brand in the first place, but I think it makes sense to do, so I'm glad they finally got around to it. Personally, though, I think of Palm as the OS more than the devices, so I kind of wish it had been the other way around with PalmSource keeping the Palm brand. But this was is more practical, and the cash will certainly help with the transitions into the phone markets and to Linux.

So, okay, you've made your point... you think PalmSource is going to fail and may have to be rescued by a PalmOne buyout, and it will happen within a year.

I disagree, but you're on record now with the prediction. Let's wait it out for the year and see if that's right or wrong. But please, let's not beat it into the ground. We understand you think PalmSource is a mess. But most people, even Pocket PC fans, just don't feel that way, and repetition is not going to convince us. In fact, it might even give the moderators an itchy trigger finger if you know what I mean.

No, I don't have a chip on my shoulder against PalmSource. But one wonders if you might have one on yours against me given your repeated veiled threats and attempts to dismiss my comments. That's not very "friendly", is it?

If you don't want to promote discussion and would prefer to keep everything quiet until the day you wake up and ask, "Oh my God, what happened to Palm!" that's entirely your right. It's your site to play with as you please, BobR. Feel free to shoot the messenger. In the back.

TVoR

[Voice_of_Reason]

Originally Posted by Traecer Prime

...I can tell you the split made sense. It would have made even more sense 1, 2, or even 3 years before, but Palm was hamstrung during that period by tax laws and an overbearing corporate parent. At the time, Palm, Handspring, Sony, and HandEra were all using Palm OS, and there were rumors that Toshiba and Dell were turned away from Palm OS because Palm (the hardware division) didn't want competition from them. Regardless of rumors, it was obvious Palm was not set up as well as Symbian or Microsoft to license their OS since every new license represented a new competitor to itself. But tax laws required that the PalmOne/Source split not happen for a period of time (1 yr or 2, I forget) after the 3Com/Palm spinoff. If the PalmOne/Source split happened immediately, the shareholders faced significant tax penalties.

The problem with waiting was that the PDA market started to crater during that time. By the time it finally happened, HandEra had exited the market completely (not surprising), Handspring was looking at smartphones to save it, and Sony found itself in a world of trouble (not all of which was PDAs). The split (and simultaneous merger with Handspring) should have strengthened both resulting companies. PalmSource was finally free to license Palm OS to whomever they wanted without regard to PalmOne. PalmOne was (theoretically at least) no longer responsible for developing the software platform, and could concentrate on making the best devices. Plus, with the Handspring merger, they picked up a ready-for-production new smartphone product line. Things should have been great for the two companies. But the continuing decline (some say maturity) of the the PDA market caused sales of PalmOne's core product line to decline, and caused PalmSource's second biggest licensee Sony to finally exit the market. Lagging PDA sales have prevented new licensees from signing up with PalmSource, and their lack of a viable smartphone OS offering has crippled their potential revenue stream (frankly, though Cobalt is better than Garnet, it doesn't provide anything other smartphone OSes have). The China MobileSoft acquisition is supposed to help remedy that situation, as is Palm OS/Linux, but we'll have to wait and see how that plays out.

Interesting take on things, Traecer Prime. There is NO way PalmOS could have been spun off as a viable company, for several reasons:

First of all - and most importantly - with licencing fees at less than $10/device and a limited # of licensees, revenues are limited right from the beginning. Pretend licensees were selling 2 million devices/quarter -> 8 million devices/year. Revenue comes to around $80 million/year. Peanuts. Then factor in the costs of the OS company doing business (salaries + benefits for several hundred employees, R + D, marketing, stock bonuses/payouts for execs [PalmSource's biggest expense?!?!], etc.) and they would probably be spending around as much - if not more - as they made. That's what's happening now. If your business model has no potential for profitability, it's not a very good business model...

A blast from the past: http://www.palminfocenter.com/view_Story.asp?ID=2447

I think there was a (2 year?) moratorium of any spinoffs (otherwise there would be a huge financial penalty) but the OS company could not have survived on its own earlier anyway for the reasons listed above. After once having a market cap (value) of over $50 BILLION in 2000, it soon became apparent by 2001 that the emperor Palm had no clothes. http://news.com.com/2100-1040-257867.html?legacy=cnet Spinning off the OS earlier would only have hastened the decline.

The only way the OS could be a profitable business given static PDA sales would be to offer PalmOS as an OS for cellphones, since the cellphone market is probably over 100 times as big as the PDA market. Unfortunately, as we all now know, PalmSource has been unable to deliver a phone OS attractve enough to convince licensees to buy the millions of copies needed to make PalmSource a viable company.

Given the facts that an independent OS makes no money and over 95% of Palm's income came from hardware sales, the strategy of protecting its profitable hardware sales by limiting licensees made a LOT of sense. In fact, I could never understand why Palm allowed Sony to become a license. It was only a matter of time before licensees with better engineering resources would ship better, less expensive hardware than Palm and steal marketshare + profits. Licensees like Symbol (selling in a niche Palm wasn't active in) and TRG/HandEra (Palm could parasitize them for development without fear that this tiny company could likely ever compete to any degree with Palm for sales to the Average Joe) made a lot more sense than licensing to Sony.

[Voice_of_Reason]

Originally Posted by BobR

SNIP

Well, BobR, can you explain/rationalize/apologize for this:

http://news.moneycentral.msn.com/tic...Symbol=US:PLMO

"Analysts questioned Colligan about whether he was worried about the recent missteps of PalmSource. PalmOne's sister company, PalmSource sells the Palm OS operating system which most of palmOne's products run on. On Wednesday, PalmSource announced that it plans to reorganize its sales, marketing and product development and cut its U.S. full-time work force by about 16 percent. PalmSource also forecast a first-quarter loss on Thursday.

"We're tracking that development closely," Colligan said. "We are working to make sure that platform carries forward. If things deteriorated more we would have to take action."

Colligan added that palmOne is prepared should it have to move to a new operating system.

"There are a number of suppliers that we could leverage," Colligan said."


Yikes!

[TadW]

Originally Posted by Voice_of_Reason

Colligan added that palmOne is prepared should it have to move to a new operating system.

Yes and meanwhile PalmSource announced during its conference call that it has signed a new "Tier 1" licensee. Your point?

[Brian]

VoR,

You seem to be shouting your message about Palm and Palmsource in every forum you can. Most of us know how you feel about this topic and you consider any news development as 'proof' of your predictions.

We can go back and forth here now in addition to PIC, but I don't see how this will contribute to the MobileRead community discussion.

Brian