Palm's Fortunes: Cloudy Again

(page 2 of 2)

An Experienced Player

With its legacy as the company that proved the viability of handheld computing devices, Palm still commands a certain amount of consumer loyalty, much like Apple (AAPL) does with its Macintosh computers. And buzz is beginning to build around a rumored new product that Jeff Hawkins, the designer behind the original PalmPilot, has started to drop hints about. That device will be revealed at a conference in May, and Hawkins has been hinting at a "third arm" of business for Palm; so far, he has declined to be more specific.

It's often been this way for Palm. In its history, Palm has gone through many strange corporate contortions, having been a unit of USRobotics and 3Com (COMS). It's also been independent and divided in two—as it was during the period that Hawkins, Colligan, and co-founder Donna Dubinsky went off to run Handspring—then reunited after Palm acquired Handspring. Very often during periods when corporate fortunes looked weak and buyout rumors picked up, it was a cool new Hawkins-designed device that propped up investors' hopes, kept acquisitive wolves at bay, and gave Palm the wherewithal to fight another day.

That's precisely what happened when Palm stepped in to buy Handspring, founded in 2000 to build handhelds aimed at consumers. While its products won rave reviews, it suffered under competitive assaults from Microsoft (MSFT) and its many handheld hardware partners, including Dell (DELL), Compaq, and later Hewlett-Packard (HPQ), not to mention Palm itself. But when Palm and Handspring decided to merge in 2003, much of the motivation for the deal was based on what was then Hawkins' latest breakthrough, which is now the Treo.

Not All Bad News

The ever-changing fortunes can be rough on Palm stockholders. Shares fell once it became clear that there would be no Motorola buyout for the foreseeable future and, as such, no premium paid to Palm's loyal shareholders. However, the earnings news did push up Palm's stock in after-hours trading, as it gained 23¢, or more than 1%, within an hour of the close of the earnings conference call.

Palm did get some other good news as a federal judge ruled that the patent lawsuit by NTP—the same NTP that extracted a $612.5 million settlement from RIM (see BusinessWeek.com, 3/3/06, "Blackberry Won't Get Squashed") to close a bitter patent feud—would be stayed pending a review of NTP's patent portfolio by the U.S. Patent & Trademark Office. That review will determine once and for all whether NTP should have been awarded the disputed patents in the first place.

Hesseldahl is a reporter for BusinessWeek.com.