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IDG News Service - Recent reports that Nokia Corp. is in talks to buy Palm Inc. surprise some analysts, who nonetheless said some type of buyout might make sense and could even be a good thing for customers.
According to news reports, the pioneering handset maker has been talking with possible suitors and Nokia has emerged as the frontrunner for an acquisition, though investors might simply take the company private. Earlier reports said Motorola Inc. wanted to buy Palm.
Palm is profitable and increasing sales but faces tough competition and has stumbled recently. It has sold fewer devices than analysts expected in recent quarters, in part because of delays in getting products out, said Casey Ryan of Nollenberger Capital Partners in San Francisco. New products from Research In Motion Ltd. and other rivals have also eaten into Palm's market share, Ryan said. The whole high-end phone category is drawing many new entrants with flashy devices, including Apple Inc. with its iPhone.
Palm was instrumental in creating the market for PDAs (personal digital assistants) in the 1990s but has moved with the rest of the handheld business to devices that can also be used as phones. Its Treo smartphones, which come with either the Palm OS or the Microsoft Corp. Windows Mobile platform, are now Palm's bread and butter.
A Palm purchase by Nokia would mark a sharp turn for the Finnish cell-phone giant, analysts said. Nokia is focused on the OS developed by Symbian Ltd., of which it is a major owner, and its own operating systems, Needham's Ryan said. Although it has had trouble selling its high-end phones in some areas outside Europe, such as the U.S., Nokia has always insisted its operating systems were better than the competition's. Bringing the Palm and Microsoft platforms into its lineup would be like Apple's chief Steve Jobs unveiling a Windows PC, he said.
"To me, it would seem to be a very challenging press conference," Ryan said.
Even if Nokia swallowed hard and admitted it needed Palm OS and Windows Mobile, the company would be faced with steep hurdles in corporate integration, he added.
A private buyout would make more sense, the analysts said. Palm is a basically sound company in a growing industry and could appreciate strongly over the next few years, according to Ryan. A reported price of US$20 per share seems reasonable, he said. On Thursday, Palm's shares (PALM) closed at $16.49, down $0.06.
Private investors could turn out to be heroes to Palm OS users, according to Greengart. They could shield Palm from the harsh glare of quarterly earnings expectations, possibly freeing management to make the big investment required to bring Palm OS up to date, he added. Despite several changes in direction and ownership over the past few years, the software has remained largely the same except for the addition of video capability, he said.