Palm plans resurgence
Published: 05 Jun 2007 17:51 BST
Palm, which lost its footing in the competitive smartphone market this past year, is turning to private equity and some former Apple execs to help it reinvigorate its product lineup.
But will it be enough?
That's the big question that Wall Street investors and gadget gurus will be looking at over the next 18 to 24 months.
On Monday, Palm said it would sell 25 percent of the company to private-equity firm Elevation Partners for $325m (£163m). Elevation Partners was founded by Fred Anderson, Apple's former chief financial officer, and Roger McNamee, who will now sit on Palm's board, replacing Eric Benhamou and D Scott Mercer. The company also said it would bring on Jon Rubinstein, who formerly ran the iPod division at Apple, as executive chairman of the board.
The deal comes as Palm, which essentially invented the smartphone category with its popular Treo product, tries to regain its position as a leader in an increasingly crowded market. Over the past couple of years, everyone and their brother — from BlackBerry maker Research In Motion (RIM) to the big handset makers Motorola, Nokia and Samsung — have been introducing so-called smartphones that combine phone functionality with email and web-surfing capability, competing directly against the Treo.
And now Apple's iPhone, which is already generating unprecedented buzz, is only weeks away from launch on AT&T's network.
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Meanwhile, Palm has been struggling to keep up with competitors in terms of new features and functionality. In recent months, rumours have floated around Wall Street that the company might be ripe for a takeover, with bigger players, such as Motorola and Nokia, mentioned as potential suitors.
In the middle of this ultra-competitive market, Palm introduced its latest product, a miniature Linux-based laptop, dubbed the Foleo, which has left many experts scratching their heads. The 2.5-pound keyboard and computing device, which is designed to attach to a Treo so people can type more easily, was announced last week, but so far has had a lacklustre reception.
"The company has been under tremendous pressure to do something," said Tavis McCourt, a managing director at Morgan Keegan & Company. "The company has missed a product cycle, and it's good to change things around to signal to investors that something new is coming."
The Rubinstein effect
The equity investment from Elevation Partners should appease frustrated investors in the short term by helping pay for the one-time $9 (£4.50) per share dividend Palm will pay out as part of this arrangement. But the deal will also have longer-term strategic benefits. Specifically, the addition of Fred Anderson, Roger McNamee and Jon Rubinstein should help the company fine-tune its vision and execute more effectively moving forward.
Palm president and chief executive Ed Colligan told investors during a conference call on Monday that Jon Rubinstein will lead the company's product development. Anderson and McNamee will probably not be involved in day-to-day operations of the company, but their presence on the board will help the company forge new relationships, as well as help ensure a source of future investment capital.
"We think this transaction will reinvigorate our management team and help us attract new talent," Colligan said. "Jon will focus on helping us turn our product engine. He'll take a leading role in the development of the product organisation."
Rubinstein, who helped turn Apple around in the late 1990s by leading development of the iMac and the iPod, appears to be well suited for the job. He's known throughout the industry as someone who…
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