Desktops to become mobile accessories

By Matt Whipp

Posted on 19 Nov 2003 at 17:42

Todd Bradley, CEO of PalmOne, and Ed Colligan, Senior VP at PalmOne and erstwhile president at Handspring reveal why timing was so important to the Handspring merger and how the company is now positioned to take advantage of social change that will elevate the mobile device to be the most important tech kit we own.

Palm's acquisition of Handspring raised few eyebrows when it occurred back in June. It gives Bradley the opportunity to describe the new PalmOne company as 'the largest pureplay handheld computing company in the world'.

But at the time Canalys consultant Andy Buss described the stock for stock deal as 'not a major move, but a necessary one'. And the question on many lips was why had it taken so long.

Colligan explained: 'This is the first time it has really made a lot of sense to get together. Before it was just about taking out a competitor. This merger is about growth.'

'When we had exactly the product line, through exactly the same channels, it didn't make a lot of sense to merge.'

Bradley candidly added that Palm was also in far from top shape before that point. He said that two and a half years ago, 'we had to deal with some of those very fundamental things of how do you create a sustainable business model.'

He described the problems with revitalising a stagnating product line with 'significant issues with the launch of the Palm 505', and introducing tough measures to the company 'that allowed us to drive inventory down, to reduce our cash burn to position us to move into these higher growth segments,' such as smartphones.

Colligan also described how the market had forced Handspring's hand to the smartphone. He said when the company first started out, 'it did explode, it was a huge business. I mean, we went from nothing to $500mn practically overnight. And then the bubble burst.'

'And a lot of companies struggled. In our space in particular, we had to make a real choice. We were small, we didn't have the scale of Palm, we were never going to be number one. But we had a desire to have a leadership position in some segment of the market. We had to make the decision as to whether we could continue to support both of those businesses as a smaller company.

'We decided that where we really thought the future was going was in the wireless direction, and we needed to make a very tough decision there. And we did. We jettisoned the PDA business for all intents and purposes to focus strictly on the smart phones. And timing is everything in this business.'

In particular the timing of this merger meant Palm got a smartphone product line that licensed its operating system and 'quickly get into the higher growth space without having to build the whole thing from scratch'.

And while Handspring retains the right to opt for whichever operating system it sees as the best fit for its products, it seems highly unlikely it would now abandon PalmSource.

Bradley expects the overall market for PalmOne's new product range of handheld, data centric and smart phone devices to grow at around 41-2 per cent. Had the company simply tried to defend its market lead in the handheld computer market, it would have meant committing a lot of resources to a sector with projected growth rates of single digits.

As for the smartphone market, PalmOne is reckoning on a 10 to 15 per cent share this year, although defining which devices are and are not smartphones is a grey area. However, the company is expecting to be party to and to drive growth in the sector.