Palm has admitted it needs to change its business model drastically.
Handheld computer firm Palm, which last week halved its revenue predictions and terminated its deal to acquire Extended Systems, on Monday saw its shares open at their lowest ever level. CEO Carl Yankowski admitted that the firm needs a dramatic change of our business model if it is to avoid running out of cash.
Palm has had to write off $300 million of inventory, despite slashing prices. This is a problem throughout the high-tech sector, as companies failed to foresee the slowdown and have been unable to cut production fast enough.
But the problem is wider than this. Palm is currently a device manufacturer, operating system developer, ISP and portal for handheld devices for businesses and consumers. As the share price plunges and chances of raising extra capital get bleaker, it won’t be able to afford to remain in all these areas.
In particular, mobile handsets and PDAs are set to converge as wireless Internet takes off. Palm doesn’t have the resources, relationships with operators, or marketing skills of a firm such as Nokia – which ships more handsets in a month than Palm has in its entire life. It has also failed to build convincing partnerships with phone manufacturers.
The collapse of the Extended Systems acquisition closes one of the most promising escape routes. Selling to enterprises has been a winning strategy in the handheld space, as seen by the success of Research in Motion and its BlackBerry email pager. Extended Systems’ enterprise software integration skills would have been a major boost in helping Palm move beyond singular sales to individuals and toward large corporate sales. Now, Palm may lose the battle for the enterprise sector to Microsoft.
Cutting costs and staff numbers is essential, but won’t solve the wider difficulties. And while a move towards services provision looks necessary as the device business is commoditized, it’s not clear that Palm will succeed since more than 95% of its present revenue comes from devices. It will be no surprise if, by the end of 2001, Palm is no longer independent.
