Palm chief ignores takeover calls, focuses on sales
Palm chief executive officer Ed Colligan says he is ignoring calls to sell the phone maker and is focused on winning back sales lost to Research In Motion and Nokia.
By Agencies |
NEW YORK: Palm chief executive officer Ed Colligan says he is ignoring calls to sell the phone maker and is focused on winning back sales lost to Research In Motion and Nokia.
“I can’t sit here and worry about that,” he said in an interview at Palm’s Sunnyvale, California, headquarters. “I can only worry about how the business is performing and what can we do as a team to do better, to get our products out faster, to drive for higher reliability, to grab more market share.”
Palm’s Treo, introduced in 2002, helped create the market for handsets offering functions such as e-mail, and forced Research In Motion to add a phone to its BlackBerry messaging devices. Since then, Research In Motion has introduced products faster, and Motorola and Nokia challenged Palm with cheaper e-mail phones for consumers.
Colligan is under pressure to produce a hit device to combat the BlackBerry as well as products from Motorola and Nokia and Apple’s iPhone, coming out in June, said Casey Ryan, an analyst at Nollenberger Capital Markets in San Francisco.
“They need to come up with more innovative devices to compete,” He rates the shares ‘neutral’ and doesn’t own them. “That’s what they used to be known for.”
Palm spent the past two years copying a design from larger rivals including Nokia that includes a standardised core to cut production costs and get handsets built faster. Using the same base in all its phones will let Palm create a new handset in nine months, down from as much as two years, Colligan said. New devices built this way go on sale this year, he said. Palm will discuss its strategy with investors in New York Tuesday.
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The design change allows Palm to use fewer parts and buy larger quantities of a single component, cutting material costs 30%, said Stephane Maes, a director in charge of Palm’s product lines. The company will also save on development costs as individual devices won’t be built from scratch. That may open up markets beyond business users.
Survival depends on Palm’s ability to create devices for making calls and sending e-mail that competitors can’t replicate, said Tony Carbone, an RCM Capital Management analyst in San Francisco. “This is only the first inning,” Carbone said.
RCM holds shares in Schaumburg, Illinois-based Motorola, the second-largest phone maker after Nokia. “What people are worried about is the fifth and sixth innings, when Motorola and Nokia really start allocating resources” to e-mail phones.
Palm’s sales this fiscal year may grow less than 1%, according to a survey of analysts. Nokia’s revenue may gain 17% and Research In Motion may increase 47%. Palm’s share of the global market for phones with e-mail and computer-like functions shrank to 2.8% in the fourth quarter from 3.3% a year earlier, said researcher IDC in Framingham, Massachusetts.
The company hired Morgan Stanley to review options including a sale of all or part of the company, a person familiar with the plan said last month. “What we are focused on today is making sure this business is as successful as possible as a stand-alone business,” said Colligan.
“When you’re a public company, there are always people who may or may not be interested in any point of time of owning that asset. We don’t control that. If that happens, it happens.” Palm’s PalmPilot electronic organiser, which preceded the Treo as a breakthrough product, sold more than 1 million units within 18 months of its debut in 1996.
Palm will focus on growth over profitability for at least the next year, Colligan said. Longer term, Palm aims to lift its operating margin to 10 percent or more from about 3% last quarter. Nokia’s profit margin was 13%, helped by the standardised production that Palm is moving toward now. “Nokia’s done this for years,” Colligan said. “They’re 20 years in the design process and we’re just getting there, frankly.”
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