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December 7, 2006

Palm secures access to its own future

In an unsurprising but symbolically important move, handheld and smartphone maker Palm Inc signed a perpetual license with Access Systems Americas Inc, which gives Palm the right to use Access' Palm OS operating system in whole or in part in any Palm device forever more.

By CBR Staff Writer

It’s costing Palm $44m, to be paid in its third quarter of fiscal year 2007, and will be recognized as an expense over the next several years. But the firm noted that this single payment eliminates the requirement for it to pay Access continuing royalties of tens of millions of dollars over coming years.

The reason that the decision is not wholly unexpected is that although some questioned whether Palm would eventually abandon the use of Palm OS in its devices in favor of Windows Mobile – which it also supports on some devices – it’s become increasingly clear that Palm sees the ability to innovate at the both the operating system and device level as critical to its ability to differentiate itself from its rivals.

Indeed as we exclusively reported back in October 2005, Palm’s CEO Ed Colligan would probably not have taken the decision to spin off Palm OS, formerly part of Palm itself, to Access Systems Americas in the first place. That was a decision taken by former Palm management.

Colligan told us back then that he would probably not have spun off Palm’s operating system arm, at that time known as PalmSource, had it been up to him.

The question for a mobile device maker like Palm is whether it is able to build more innovative, differentiated devices if it can control, integrate, and manipulate the operating system as well as just the user interface and application layers. From the time Palm has not owned Palm OS, its ability to do that going forward has been in some doubt.

In any case, Colligan has clearly been influential in not only securing the rights to continue to use and customize Palm OS to suit its own purposes, but also to remove any sneaking suspicions that all that could crumble away if Access chose not to renew their annual license arrangements.

With a perpetual license now signed, the army of Palm OS developers out there writing applications to run on that operating system can rest assured that their applications will still have a destination platform – namely Palm OS on Palm devices – for many years to come.

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The license covers the source code for Palm OS Garnet, the version of the Palm OS used in several of Palm’s Treo smartphone models and all Palm handheld computers. Under the agreement, Palm now has a perpetual license to use as well as to innovate on the Palm OS Garnet code base.

Palm will retain ownership rights in its innovations, which is also important as an alternative could have been that innovations were passed back into the code base for other Palm OS licensees to take advantage of. But Palm also made it clear that it intends to ensure that, as it put it, applications now compatible with Palm OS Garnet will operate with little or no modification in future Palm products that employ Palm OS Garnet as the company evolves it over time.

The new agreement provides Palm flexibility to use Palm OS Garnet in whole or in part in any Palm product, and together with any other system technologies. In addition, Palm has secured an expansion of its existing patent license from Access to cover all current and future Palm products, regardless of the underlying operating system — in other words Access will not claim patent infringement even if the device in question is one of Palm’s models that run Windows Mobile.

This agreement gives Palm increased ability to innovate on the Palm OS Garnet base, and to effectively differentiate Palm products long into the future, said Mark Bercow, senior vice president of business development at Palm. We value the Palm OS development community, and are very committed to our loyal base of Palm OS customers, all of whom will benefit from the agreement just concluded with Access.

The company stressed that although it will continue to enhance Palm OS, it will also, continue to support and further innovate on its implementation of Windows Mobile 5.0 Pocket PC Edition.

When it introduced the Windows Mobile support, Palm’s Colligan told us the reason was partly to give customers choice, partly because some of its carrier partners did not want devices based on Palm OS, and partly because some enterprises it wants to sell to have a Microsoft only attitude.

Though Palm has been on an upward trajectory since Colligan took the reins, it acknowledged last month that a delay in certification of its latest Treo smartphone would push current-quarter earnings below previous estimates. Specifically that was its Treo 750 for the US market, which will now begin shipping early in the third quarter of 2007. Colligan noted its Treo 750v launch in Europe was doing quite well, and we expect international revenue for [the current quarter] to be strong.

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