Palm Inc. will unveil a platform before the end of 2007 that runs the Palm OS on top of a Linux kernel, allowing the company to improve the performance and stability of its handhelds and smart phones, CEO Ed Colligan said today.

Palm will also continue to use Microsoft Corp.'s Windows Mobile OS, which is in high demand by business customers and global telephony carriers. By continuing to develop applications on both tracks, Palm will extend its ongoing transition from selling PDAs (personal digital assistants) to smart phones, Colligan said at the company's annual analyst and investor day in New York.

Since Palm developed the original PalmPilot handheld organizer in 1996, the company has come to rely heavily on the Treo smart phone as its top seller, available as the 700w (running Windows), 700p (running Palm OS) and other models. Compared with handheld sales, Palm has increased its smart phone revenue from 28% in the third quarter of 2004 to 86% in the third fiscal quarter of 2007, Colligan said.

Palm does not intend to license the new Linux-based platform to other handheld vendors but will use it to upgrade the Palm OS, allowing it to handle simultaneous voice and data traffic while preserving its instant-on and instant application-switching abilities, Colligan said.

Those changes will allow Palm to continue a trend of increasing its sales to consumers and small business users, as revenue from enterprise buyers continues to drop off, said Brodie Keast, the company's senior vice president for marketing. Palm is forecasting that revenue generated by enterprise buyers will drop from 50% in 2006 to 30% in 2009, as the company's share of revenue from small business buyers rises from 20% to 30% and revenue from consumers increases from 30% to 40%.

In announcing those plans for long-term change, Palm executives skirted the issue of whether the company might be acquired. Recent industry rumors have suggested that either Motorola Inc. or Nokia Corp. would buy the company, but those whispers died down when Palm reported on March 22 that its third-quarter profit was $16.5 million, down from $19.8 million for the same quarter last year.

Colligan acknowledged the rumors, but dodged direct comment by saying in a question-and-answer period that "we're not going to be able to comment on rumor and speculation."

Instead, Colligan described two recent acquisitions that Palm itself has made, paying a combined $19 million over the past quarter for e-mail software client vendor ChatterEmail and hiring certain engineers and technologies from user interface design company Iventor Inc.

Colligan also hinted that he would continue shopping, saying that Palm has built up cash savings that could be used to acquire new software providers to help differentiate Palm smart phones from competing products.

Palm also plans to increase the number of new products it launches in 2007 and 2008, said Mike Farese, senior vice president for engineering. Palm designers have created a reference design for a common smart phone platform, allowing them to slash development schedules even as they save money through high-volume purchases of shared components.

The common platform could also allow Palm to compete better with Apple Inc.'s new iPhone. Colligan insisted he is taking the iPhone seriously as a competitive threat but that it will appeal to a slightly different segment of users than Palm products do.

The iPhone will be attractive for customers who are looking for an entertainment platform, but it could be limited in the consumer market by its high price of $499 and in the business market by its lack of a full keyboard, Palm executives said.

Gartner Inc. analyst Ken Dulaney said the decision to use Linux in a future mobile computing device at Palm is not going to give Palm a strong advantage in the market.

"I am not sure this is the top move Palm needs right now," Dulaney said in an interview. "They need instead to get bigger, and they need more hardware products, so it's hard to believe any advantage Linux gives them. If they think Linux will leverage them against Microsoft and Apple, they need to think again."

Regarding changes to hardware, Dulaney said Palm needs to reduce the thickness of the Treo device to compete against BlackBerry or other devices.

Craig Mathias, an analyst at The Farpoint Group in Ashland, Mass., and a Computerworld columnist, said he felt Palm's use of Linux "makes sense ... the beauty of Linux is that it doesn't cost much." He noted that Palm can take the existing Garnet operating system and put it on top of Linux to "drive growth in that segment for some time ... There's still a loyal following for the Palm OS."

Analyst Jack E. Gold, of J.Gold Associates LLC, in an e-mail wrote that Palm needs to "differentiate itself from the competition" and that adding a Linux core may help, since there is "no major player in the smart phone market with Linux devices." He noted this is changing rapidly as products from new OEMs in emerging markets debut, and said Motorola has committed to Linux for its consumer-grade phones.

"I believe Palm is in survival mode," Gold said. It can’t remain stationery with its existing products. The competition is too fierce. It has to do something to differentiate itself and get back some of the pizzazz it once had and that will again get it noticed as an innovator. This might be a way for them to do it, If they can pull it off and in the short term."

Author: Ben Ames and Matt Hamblen
Source: http://www.computerworld.com/

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