Business Watch: Palm hunts for buyer as it loses the war

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US based Palm has hired Goldman Sachs and Californian adviser Qatalyst Partners to find a buyer, according to Bloomberg.

It’s a sure sign that clear winners and losers are emerging in the lucrative, high-end smartphone market, with Apple, and BlackBerry maker Research In Motion well out ahead of the pack.

Palm will not be the only loser and its attempts to sell itself may mark the start of a round of consolidation between device makers.

It’s nearly 20 years since neurologist Jeff Hawkins founded Palm, which captured the public’s imagination with its Palm Pilot devices – remember when they were cool, anyone?

These were among the first devices that let people write on the screen using an electronic pen. They began life as simple but effective electronic diaries and address books.

The company’s prospects then appeared to be transformed once it was able to include phone, email and web functionality.

Over-exuberance about Palm’s growth potential saw its market value soar to a jaw-dropping £34 billion when it was floated at the turn of the millennium.

If it can find a buyer now, it will fetch just a fraction of that. Something that Bono will be less than pleased with.

The U2 frontman’s media and telecoms venture capital group Elevation Partners has sunk hundreds of millions of cash into Palm in recent years.
It’s been a suitably rocky ride for the Irishman. The shares had ballooned 10-fold since December 2008 but have since lost most of those gains.

It’s not that Palm makes bad products, say the analysts, it’s just that they are not sexy in the way that iPhones and BlackBerrys  are.

In the fast-moving world of fashion that is now the device market, being out of season can be fatally damaging. And if the networks aren’t keen to aggressively market your device for you, you’re in trouble too.

Palm’s chief executive, Jon Rubinstein, admitted recently that its performance had been “very disappointing” after it booked a net loss of $18.5m in the three months to February.

Palm lost around half of its share of the North American smartphone market between 2008 and 2009, according to Gartner.

Last year, it had just 4.2 per cent market share versus, BlackBerry, with 50.3 per cent, followed by Apple’s 24.3 per cent.

All of which is why Palm has put itself on the block, news that sent its shares soaring – off their low levels – when it was first reported.

Rumoured potential buyers include the likes of Taiwan’s HTC and the China’s Lenovo but also Nokia or RIM itself.

Analysts think that Palm’s WebOS operating system is its most attractive asset, one that could give other device markers a leg up against the iPhone and Google’s Android platform.

But the sale process was dealt a severe blow late last week when Michael Abbott, Palm senior vice president of software and service and the brains behind WebOS, quit suddenly.

His departure could say something about his lack of confidence in Palm’s true value because Abbot has 400,000 share options priced at the unchallenging looking price of $5.79.

Analysts leapt on the news, sending Palm shares 12 per cent lower as they questioned whether Palm might have to accept an offer lower than its current market price.

Tavis McCourt, analyst at stockbroking firm Morgan Keegan, joined analysts at research house 451 Group in doubting whether Palm will be able to locate an appropriate suitor.

McCourt told his clients in a note: “These are not activities that inspire confidence about Palm’s ability or willingness to sell out at a premium valuation in the near term.

“We are downgrading to an underperform rating as a near-term buyout would appear less likely based on these actions, while Palm’s ability to execute a turnaround internally remains difficult.”

451 meanwhile said that Palm’s problem is that it is taking too long to get new devices to market.

“Standing still with only two device models is suicide in an age of new Google Android phones launching every couple of months and monopolising the mind share of smartphone shoppers every summer.”

451 also questioned the true value of webOS, not least because its developer community and application store are in the early stages, and are up against entrenched giants in Google and Apple.

Given all the uncertainty it would be small wonder if the reports are true that Palm has started started slapping golden handcuffs upon the key executives who’ve not already quit, presumably in what would be an effort prevent a mass exodus ahead of a much-hoped for sale.

3 profit target

Another year, another profit target for 3, the nine-country mobile network operator owned by Hong Kong conglomerate Hutchison Whampoa.

Hutch recently predicted that the business should finally break even before paying its interest and tax bills this year after it missed the same target last year.

About time, will say Hutchison’s investors, who have had to swallow almost a decade of waiting for that moment and are probably tired of Hutch’s all-too-familiar “jam later” refrain.

It still seems probable that 3 will have to fall into the arms of a larger rival in the long-term in order to become a truly viable operator.

The 3 Group of companies saw total customer numbers jump 29 per cent last year taking its user base to over 26.8 million users.

But average revenue per user tumbled 15 per cent to €28.32 thanks to ferocious competition and regulatory price cuts.

And it looks like there are more regulatory price cuts to come, in the UK at least, which is certainly bad news for the larger operators.

Ofcom’s plans to slash the cost of calling a mobile phone have prompted protests by the big four – O2, Orange, T-Mobile and Vodafone – that they will be less able to invest in 4G.

They have also warned that under Ofcom’s plans they would have to stop giving away phones to post-paid subscribers, as well as make redundancies.

It’s probably fair to say, they are not too happy about it.

 

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