5 June 2003 Palm, the leading supplier of handheld computing devices, is acquiring rival Handspring for approximately $169 million in a bid to stave off increasing competition, and is spinning out its software division, PalmSource, into a separate company.
Although Palm continues to dominate the personal digital assistant (PDA) market, shipments of its devices have been falling for a number of quarters and the company has been losing sales to companies including Hewlett-Packard and Dell.
It has also been slow to move into the market for hybrid mobile phone/handheld devices. Although currently small, this market is expected to overtake the PDA market by 2005.
Commenting on the move, Eric Benhamou, Palm’s CEO said that the combination of the two companies was “essential” as competition between handhelds and smart phones, especially from companies such as Microsoft and Nokia, increased. Through the acquisition of Handspring, he said, Palm would have one of the broadest product line-ups in the industry.
From a product perspective, say analysts, there is a lot of synergy between Palm and Handspring. Not only is Handspring a licencee of Palm’s operating system software, Palm OS, the company has also been moving away from PDAs in recent months, focusing its business around Treo, a hybrid phone/PDA.
However, the company will still face a number of financial challenges. Handspring has suffered widening losses in recent months coupled with declining revenues. Prior to the merger, many were questioning the company’s ability to survive. Palm too posted losses in its most recent quarter and the market for handheld computers is expected to remain flat for the rest of this year.
There is also much concern over the cultures of the two companies. The two founders of Handspring originally founded Palm in 1992 but left in 1998 following differences with Eric Benhamou over how the business was being run.
According to analysts, Donna Dubinsky, CEO of Handspring, had originally resisted a takeover by Palm but, as the company’s financial position deteriorated, she was left with little choice.
The merger is expected to be completed in the autumn and the software spin-off will occur at the same time.