Acer Casts Aside Windows CE in Favor of Palm OS
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Casting aside investors concerns of a week ago when it admitted that its revenue outlook was much lower, Palm Inc. Wednesday scored a bit of a coup Wednesday when Taiwan's Acer Inc. said it would dispose of Microsoft Corp.'s Window CE operating system in favor of the Palm OS.
This should come as no shock to anyone. Palm's OS is considered the king-of-the-hill in terms of embedded systems for handheld devices, with some research firms claiming it holds as much as 80 to 90 percent of the market share. In Acer Inc., Palm has won the hand of Taiwan's largest PC maker in a deal that will allow Acer's PDAs to run Palm's operating system for handheld computers.
While financial details were not disclosed, the deal sets up a win-win situation for both outfits: Palm gets broader exposure; Acer, which a little more than a week ago suffered from a fire that caused $20 million in damages to its main offices in northern Taipei's Eastern Science Park, will benefit from Palm's flexible OS.
But more importantly, Acer is trying to develop its own brand recognition. To minimize the risk of a conflict of interest between running a private label and making computers for IBM Corp and Dell Computer Corp., the giant announced the formation of a second company in March to sell computers under its own name. Palm's brand recognition is sure to help in this great undertaking, scheduled to be completed in two years.
While good news for Palm, Microsoft is the real victim here, losing out to a competitor it has been fighting so hard. Interestingly enough, Microsoft announced Tuesday that it had skated past one million units sold for its Pocket PC, with Gartner analyst Bob Egan praising the company for its inroads into the handheld market where colossals such as Palm and Handspring Inc. hold court.
The big picture
Palm could use the good news. The handheld specialist rolled out the dread carpet a week ago Thursday when it cut its revenue outlook for its fourth quarter of 2001 by 50 percent and killed its planned purchase of mobile software specialist Extended Systems Inc.
This news caused the firm's stock to plummet 28 percent Friday to $5.05. While some investors may have been a bit skittish in determining how to take the news, analysts had time to reflect over the weekend and subsequently painted a rosier picture.
UBS Warburg analyst Don Young upgraded the shares of Palm to "strong buy" from "hold," because of Palm's head-on approach to its bloated inventory issues and noted that the company's consumer-oriented market would improve with the economy.
Greg Kyle, president and chief executive officer at Pegasus Research International, told On24 this week that he expects good things for Palm when the economy becomes a bit more firm. Kyle said that despite increasing competition from Microsoft and Handspring, he sees Palm making the real killing in its software licensing revenues. But Palm has work to do in this category, Kyles said, as 97 percent of its revenues come from its signature line of handhelds.
What has been widely noted in the sector, is that analysts are still unsure as to whether or not Palm will make any waves among new and existing customers with its pricey m505, which, although it has snap-on modules, Kyle said it may not be enough to lasso more business.
In related news, Palm's flagship OS received more kudos Wednesday when Juniper Bank, an online and wireless credit card and financial services company extended its wireless banking capabilities to owners of Palm OS-based personal digital assistants (PDAs).
Beginning Wednesday, consumers can download Juniper's wireless banking application and conduct wireless banking through their Palm V, Palm VII or Handspring Visor. According to research firm Cahners In-Stat Group wireless Internet access devices, including PDAs, will eventually displace the PC over the next several years as the preferred Internet access method.
Sales of wireless Internet access devices will experience double- to triple-digit growth through 2004, and users of wireless data services in the U.S. could grow to more than 36 million users, Cahners said.