Palm finally spins off software unit

[JANUARY 29, 2002] -- Palm Inc. last week finally completed the separation of its hardware and software businesses, splitting the company's wireless device and operating system organizations into separate entities. Under the new corporate structure, Palm Inc. will become a licensee of the OS it created.

Palm first signaled its intention to spin off a software subsidiary last year. At that time, the company hired former AT&T and Apple Computer executive David Nagel to run its Palm OS business and shepherd the organization through the changes. Company officials credit Nagel with moving aggressively over a year-plus to complete the separation as part of an overall corporate plan to accelerate Palm OS market momentum. Palm's board, which includes Nagel, formally approved the spin-off last month.

Nagel was immediately named president and CEO of the new software subsidiary. The new organization will immediately house about 300 of the company's employees, and will inherit some of Palm's patents and software code, executives said.

Nagel will speak further on the future of the Palm OS platform in his first address to the Palm developers at the upcoming PalmSource conference (Feb 5-8, San Jose Calif.). Observers expect the company will roll out a technology roadmap for the Palm OS and disclose further data about the bifurcated company at the same time.

Palm is still the leading maker of hand-held computers, despite serious market-share challenges from a range of innovative device makers, and the company used the announcement of the software spin-off to note its standing in the marketplace. Market researchers at NPD Intellect report that November sales of Palm-powered handhelds (the most recent figures available) made up about 82 percent of all handhelds sold at retail in the United States.

Handheld makers who partner with Microsoft, including Hewlett-Packard and Compaq Computer are gaining ground among corporate users, NPD researchers found. Devices using Microsoft's PocketPC software made up 14 percent of handhelds sold, but reaped 24 percent of the sales revenue due to their higher price tags.

One way that Palm keeps H-P and Compaq at bay is by licensing its OS to other device makers, including Handspring, Sony, Acer, HandEra, Kyocera, and Samsung, among others. To date, more than 190,000 developers and solution providers have registered with Palm to develop solutions based on the company's OS, and there are currently more than 13,000 commercial applications available for Palm-powered devices.

However, Palm Inc. is expected to remain that new software operation's largest customer.

About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at [email protected].