PalmSource shares leapt 77.90% to $17.95 Friday on news of the agreed $18.50-a-share cash deal that will take the company to the forefront of the rapidly evolving world of software for mobile devices.
Toru Arakawa, CEO of Tokyo, Japan-based Access, said that combining Access’s NetFront browser platform and its business relationships with PalmSource’s operating system, application portfolio, user interface, and developer communities, the company will be able to produce a comprehensive solution for the mobile market.
Though PalmSource software runs on over 39 million devices, and it claims a community of 400,000 mobile application developers, its market share has been falling and it has been faced with the persistent danger that Palm Inc will defect to the Windows camp. What made it attractive to Access was its December 2004 $22.3 million acquisition of China MobileSoft, which had developed its own energy-efficient and fast-booting embedded Linux kernel.
With much of the growth in sales of mobile devices coming from developing countries such as China, there has been a surge of interest in Linux. CMS already has 10 licensees so Access will hit the ground running in the Chinese market with a complete software offering for mobile handsets. Access said the deal will also give it operating system platform expertise and Linux development resources for mobile devices in the US and France.
Linux-based mobile devices have a considerable cost advantage over operating systems offered by Symbian and Microsoft that are increasingly squeezed into the high end of the market.
Access made its name as a developer of Compact HTML, and it claims that its Netfront browser used in mobile devices, consumer electrics, and automobile telematics, has achieved 180 million deployments in 646 internet devices from 90 manufacturers.
The Tokyo stock exchange-quoted company made an operating profit of $20.4 million on revenue of $102.7 million last year.
By contrast, PalmSource reported net income of $19.5 million on revenue 1.6% lower at $71.9 million, and its share price has been steadily falling after topping $40 after it was split from Palm at the end of 2003 in a move to separate the hardware and software sides of the business. The huge price it extracted from Access is testimony to the fact that it provides the missing components to a complete software package for mobile devices at all price points.
Palm, an Access customer, gave its blessing to the merger and CEO Ed Colligan said the company was looking forward to continuing its strong working relationship to advance the Palm OS platform.
Access sees its vision as ubiquitous web browsing, and claims it has an 80% share of the non-PC market in Japan. The company has some high-profile customers including Motorola and Nokia, and as a partner of NTT DoCoMo, is has benefited from the global growth of i-mode services.
One company that might look at the acquisition with some alarm is Microsoft because the merger will substantially strengthen the non-Windows camp. After seeing its operating systems expand at the expense of Palm, Microsoft will now be faced with a far more formidable rival.
