Palm needs Nova to shine
Palm is poised to make what some analysts are calling its last stand at this week's Consumer Electronics Show, where it is expected to introduce its long-awaited Linux-based operating system.
Code-named Nova, it will power a new generation of smart phones and potentially other devices. The move is Palm's best chance to get back into the smart phone market, which it pioneered with its Treo handsets and later ceded to companies such as BlackBerry-maker Research in Motion and Apple with its iPhone.
The stakes are high for Palm, which risks permanent irrelevancy or worse if it can't generate some buzz and momentum around its combination of hardware and software.
"The bottom line is this is Palm's last gasp. They have to come out with a new OS to make themselves relevant again," said Jack Gold, analyst for J.Gold Associates. "Their old OS is a geriatric case. It's been around for a long time and has been marginally improved, but it hasn't kept pace with the iPhone or (Google) Androids of the world."
The new system will replace the aging Palm OS platform, which continues to run on smart phones like the Palm Centro, a brisk-selling but low-margin device. Palm also will continue to sell h ardware running Windows Mobile software.
Details are scarce about the new software, but Palm executives told BusinessWeek that it plans on aiming for the "fat middle" of the market, bridging the gap between the iPhone's consumer focus and the BlackBerry's more corporate profile.
"People's work and personal lives are melding," Palm CEO Ed Colligan told the magazine.
It's also unclear what new hardware will run the OS. Palm appears ready to unveil a new handset to go along with the OS but it could also be preparing a larger mobile Internet device that could also run on the platform.
Palm has its work cut out for it. In its most recent quarter, Palm sold 599,000 smart phones, down 13 percent from the previous year. Apple, meanwhile, sold 6.9 million iPhones in its most recent quarter, while RIM shipped 6.7 million BlackBerrys.
Analysts believe Palm might be in a much better position had it released the new OS two years ago. Now the landscape is crowded with rivals who are winning not only more consumers, but also more developer support.
Apple's iPhone has made millions of dollars for application developers through its App Store, while Google's Android OS is also poised to begin offering paid apps for the G1 phone. RIM is offering a similar store for mobile users, which should attract a large number of developers, considering its installed base.
While Palm enjoyed strong support among developers in the early days of the Treo, many mobile developers now have more options and are chasing the dollars found in more popular platforms, something Palm will have to address with Nova.
"There's no momentum behind Palm," said analyst Pablo Perez-Fernandez of Global Crown Capital. "There's really no room for Palm. If you ask new developers if they want to write for a marginalized company or a company like Apple, the answer is obvious."
Perez-Fernandez said Palm's financial situation is also precarious. Despite an infusion last month of $100 million from Elevation Partners, which now owns 39 percent of the company, Palm will need to generate revenue quickly if it wants to stay afloat. The company last month posted its sixth straight quarterly loss and saw smart-phone revenue drop off 39 percent in the latest quarter compared to a year before.
The problem is new Nova products aren't expected to premiere until mid-2009, which means more pressure for Palm in the short term.
"The problem is, given the timeline for the release of new handsets, Palm could burn through upward of $100 million in three quarters, and if sales don't pick up soon, they could burn through their new cash injection and cash on hand," Perez-Fernandez said.
Analyst Ken Dulaney of Gartner said Palm could still resurrect itself with a strong showing from Nova, but he's reserving judgment until he sees it. He said Palm might have been better served if, instead of creating its own OS, it worked off Google's Android, another Linux platform, and tailored it to fit its hardware.
"I think of Palm not for its hardware manufacturing but for its legacy of software," Dulaney said. "They have the expertise to take the rough edges off of what's delivered to market."
The announcement at CES also will be a chance to see the mark left by Elevation Partners, which first bought a 25 percent stake in Palm in 2007 and installed former Apple head of hardware engineering Jon Rubinstein as executive chairman. Though Nova has been in production since before Rubinstein joined Palm, it is expected to bear his fingerprints.
Rubinstein will need to hit it out of the park or Palm's fortunes could be sealed, said Perez-Fernandez.
"The future of the company rides on Nova," he said. "If they're not able to get handsets out that are appealing to the public, they're really going to have big trouble. The company could literally disappear if they don't do it."
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Code-named Nova, it will power a new generation of smart phones and potentially other devices. The move is Palm's best chance to get back into the smart phone market, which it pioneered with its Treo handsets and later ceded to companies such as BlackBerry-maker Research in Motion and Apple with its iPhone.
The stakes are high for Palm, which risks permanent irrelevancy or worse if it can't generate some buzz and momentum around its combination of hardware and software.
"The bottom line is this is Palm's last gasp. They have to come out with a new OS to make themselves relevant again," said Jack Gold, analyst for J.Gold Associates. "Their old OS is a geriatric case. It's been around for a long time and has been marginally improved, but it hasn't kept pace with the iPhone or (Google) Androids of the world."
The new system will replace the aging Palm OS platform, which continues to run on smart phones like the Palm Centro, a brisk-selling but low-margin device. Palm also will continue to sell h ardware running Windows Mobile software.
Details are scarce about the new software, but Palm executives told BusinessWeek that it plans on aiming for the "fat middle" of the market, bridging the gap between the iPhone's consumer focus and the BlackBerry's more corporate profile.
"People's work and personal lives are melding," Palm CEO Ed Colligan told the magazine.
It's also unclear what new hardware will run the OS. Palm appears ready to unveil a new handset to go along with the OS but it could also be preparing a larger mobile Internet device that could also run on the platform.
Palm has its work cut out for it. In its most recent quarter, Palm sold 599,000 smart phones, down 13 percent from the previous year. Apple, meanwhile, sold 6.9 million iPhones in its most recent quarter, while RIM shipped 6.7 million BlackBerrys.
Analysts believe Palm might be in a much better position had it released the new OS two years ago. Now the landscape is crowded with rivals who are winning not only more consumers, but also more developer support.
Apple's iPhone has made millions of dollars for application developers through its App Store, while Google's Android OS is also poised to begin offering paid apps for the G1 phone. RIM is offering a similar store for mobile users, which should attract a large number of developers, considering its installed base.
While Palm enjoyed strong support among developers in the early days of the Treo, many mobile developers now have more options and are chasing the dollars found in more popular platforms, something Palm will have to address with Nova.
"There's no momentum behind Palm," said analyst Pablo Perez-Fernandez of Global Crown Capital. "There's really no room for Palm. If you ask new developers if they want to write for a marginalized company or a company like Apple, the answer is obvious."
Perez-Fernandez said Palm's financial situation is also precarious. Despite an infusion last month of $100 million from Elevation Partners, which now owns 39 percent of the company, Palm will need to generate revenue quickly if it wants to stay afloat. The company last month posted its sixth straight quarterly loss and saw smart-phone revenue drop off 39 percent in the latest quarter compared to a year before.
The problem is new Nova products aren't expected to premiere until mid-2009, which means more pressure for Palm in the short term.
"The problem is, given the timeline for the release of new handsets, Palm could burn through upward of $100 million in three quarters, and if sales don't pick up soon, they could burn through their new cash injection and cash on hand," Perez-Fernandez said.
Analyst Ken Dulaney of Gartner said Palm could still resurrect itself with a strong showing from Nova, but he's reserving judgment until he sees it. He said Palm might have been better served if, instead of creating its own OS, it worked off Google's Android, another Linux platform, and tailored it to fit its hardware.
"I think of Palm not for its hardware manufacturing but for its legacy of software," Dulaney said. "They have the expertise to take the rough edges off of what's delivered to market."
The announcement at CES also will be a chance to see the mark left by Elevation Partners, which first bought a 25 percent stake in Palm in 2007 and installed former Apple head of hardware engineering Jon Rubinstein as executive chairman. Though Nova has been in production since before Rubinstein joined Palm, it is expected to bear his fingerprints.
Rubinstein will need to hit it out of the park or Palm's fortunes could be sealed, said Perez-Fernandez.
"The future of the company rides on Nova," he said. "If they're not able to get handsets out that are appealing to the public, they're really going to have big trouble. The company could literally disappear if they don't do it."
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