news.cnet.com/news/0-1006-200-6159520.html?tag=mn_hd -> news.com.com/2100-1040-267721.html?legacy=cnet&tag=mn_hd
Now the handheld giant has broken into a cold sweat, spurring speculation of a major restructuring or even an acquisition. Palm already laid off 300 people, or nearly 16 percent of its work force, in April. In addition to the upcoming layoffs, a number of signs point to Palm's growing weakness: an inventory glut, a recent earnings warning, zapped cash reserves, a depressed stock price, a 29 failed acquisition, and scuttled plans to move its headquarters. Analysts stop well short of saying that Palm is shopping itself to potential buyers. It's clear the company needs an infusion of funds, though there are other ways to raise the money. Nevertheless, some analysts say, Palm is an increasingly attractive target. Bancorp Piper Jaffray analyst William Crawford said Friday. When he resumed the leadership of the Mac maker three years ago, he tried to buy the company from 3Com, but Palm held out for the public market instead. It's unclear whether Jobs is still eyeing the company with a taste for acquisition, but in a May 14 article in Fortune, Jobs lavished praise on Palm and other handheld computer makers. On several levels, Apple would appear to be a possible suitor as the companies share similar businesses. Apple and Palm, for example, provide the operating system and the hardware for their devices. Apple also is credited with creating the first palm-sized computer, the Newton, in 1993. IBM is also viewed as a logical suitor, chiefly because Palm's latest sales campaign targets corporate customers--businesses with legions of sales representatives and other workers who use handheld computers. Palm spokeswoman Marlene Somsak flatly denied that the company is flirting with acquisition. Somsak noted that any acquisition bid would be made considerably more expensive by the tax liability related to Palm's spin-off from 3Com last year. Federal regulators gave the transaction tax-free status. But anyone purchasing more than 50 percent of Palm before June 2002 will potentially have to pay those taxes. The company also adopted a "poison pill" shareholder rights plan last year that would make a hostile takeover attempt more difficult than without it, Somsak noted. Still, Palm's current weakness is visible on several fronts. Last month, Palm warned Wall Street that fiscal fourth-quarter revenue will be about half of its previous forecast--which already was sharply reduced. In the past year, Palm's market share has withered from more than 80 percent to about 60 percent of the overall handheld market, as Silicon Valley rivals such as Handspring grow stronger. Wall Street has criticized Palm managers, particularly CEO Carl Yankowski. Analysts say the company needs executives who can remedy the supply-chain management flaws that have resulted in a glut of Palm devices this spring and botched product launches. The company's handheld computers became symbols of the New Economy--the most cutting-edge way to pass resumes, keep appointments and swap files via infrared beaming. In the first 18 months on the market, consumers bought 1 million Palms. According to marketers in the handheld industry, the original PalmPilot caught on faster than the VCR, the color TV, the cell phone, even the personal computer. About 13 million people now own a Palm-branded handheld. Parent company 3Com spun off Palm, which went public in February 2000. Investors quickly bid up the stock's initial price: It soared from $38 to more than $160 on its first day of trading. At the time, Palm handhelds accounted for about three out of every four handheld devices sold. But competitors were jealously eyeing the company's dominance. Palm and Handspring recently escalated a long-simmering price war that has been shaving the industry's once stellar profit margins. In April, Palm slashed 14 percent from the price of its Palm Vx, discounting it to $299, and took $20 off the $149 sticker price of the low-end m100 model. Palm's discounts came as the company has struggled to unload 32 $200 million in unsold inventory for the quarter, in addition to $100 million in inventory from the quarter before that. Like its peers in the personal computer industry, Palm underestimated the severity of the economic downturn, which particularly hammered the broad technology sector. Even more worrisome: The pace of price cuts seems to be accelerating--and affecting top-of-the-line and new models that used to keep Palm's profit margins near 40 percent. The company warned analysts recently that margins could erode to 25 percent within a few months. As competitors knock down prices, Palm retailers have taken matters into their own hands by selling the devices well below the listed prices--even on brand-new m500 and m505 models. Electronics retailer Best Buy, for example, 33 has chopped the m500 price tag by $70, selling it for $330. Dead opposite Discounts are the dead opposite of Palm's halcyon days last year, when stores couldn't stock enough handhelds and Palms were icons of the digital age. Back then, would-be members in the cult of Palm 34 resorted to paying $50 or more above retail price on eBay and other online auction sites. So far, Pocket PC-based handhelds have captured less than 10 percent of the market. Pocket PC has an annual budget for research and development of $300 million, second only to Microsoft's Xbox project in terms of budget allowances. In addition to inventory gluts and heated competition, Palm faces a cash crunch. The company had $700 million in cash in January, but analysts expect the company to have no more than $100 million by year's end. In its drive to save on short-term expenditures, Palm has 35 cut back on its sales efforts to large businesses, even as Yankowski has pinned long-term hopes on selling to markets such as corporate sales forces. The exact extent of Palm's current crisis will become clear soon. The company reports fiscal fourth-quarter and full-year results during the week of June 25. More on this story's companies and topics 36 Palmone 37 Create alert 38 Microsoft Corp 39 Create alert 40 Create your own e-mail alert > Related stories * 41 Company cuts staff after failed Palm deal May 31, 2001 * 42 Price pressure extends to new Palms May 30, 2001 * 43 Will Palm scrap businesses to survive?
|
http://csua.com/feed/