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Palm Funds New Memory Card Business

PDA maker Palm pledged Tuesday to invest in a new publishing company whose aim is to provide media from Secure Digital (SD) and MultiMediaCard (MMC) formats.

Palm and an undisclosed roster of private investors took a minority interest in the new company, Mobile Digital Media, to develop and distribute software through SD cards and MMC. Palm's former COO Barry Cottle will serve as CEO, while Palm's former chief marketing officer, Satjiv Chahil, will be chairman of the board. The deal calls for Mobile Digital Media to received access to Palm's distribution pipe, in addition to preferred treatment for its products.

"Mobile Digital Media will dramatically increase the content available on SD and MultiMediaCard media," Cottle said in a statement. "Our focus will be on leveraging our advantage as a leading publisher on expansion media to attract high-quality content and grow the market."

Last week, Palm announced Sony had invested $20 million in PalmSource, Palm's unit for licensing its dominant operating system for handhelds. Palm would like to separate the two companies by the end of the year.

MMC and SD are minute flash-memory cards the size of a postage-stamp size memory card and weighing about two grams. SD and MMC act much like a souped-up and miniaturized CD-ROM, storing applications, text, images, and video and audio files for digital cameras, PDAs, and other mobi2le devices. Blank SD cards have input-output capabilities for storing up to 128MB of information.

According to research done by Creative Strategies, a Silicon Valley technology consultancy, there were 2.1 million handhelds with SD and MMC capabilities as of February. The company predicts that number will grow to 350 million appliances by 2006.

"The SD slot is well on the way to becoming universally accepted in handheld devices," said Gartner Group analyst Todd Kort, "so [Mobile Digital Media's] efforts will benefit the entire PDA industry, not just Palm."

SD and MMC media have gained wide acceptance. The SD Card Association, for instance, boasts 500 participating companies, including Toshiba and SanDisk, which helped develop the standard.

Mobile Digital Media will continue to make the utility cards that Palm had made. The new company said it would unveil new cards by Christmas, including a Rayman game and a Lonely Planet worldwide travel guide card.

Palm, which has dominated the handheld market until recent wobbles, gave the formats a big push in March 2001, when it rolled out its Palm m500 family of handhelds using the standards. The company has continued to support the media, through its solutions unit, now boasting a suite of PalmPak cards focused on travel and games, in addition to SD-format backup cards.

After defining the market with its PalmPilot line, Palm saw its stock price dwindle to below $1, before executing a 1-for-20 reverse stock split last week, as it lost market share to Microsoft's PocketPC and its various Windows CE licensees.

Palm saw its PDA market share slip in the second quarter, as customers awaited the release of its latest devices powered by Palm OS 5, which is due for release on devices later this month. According to Gartner Dataquest, the Palm OS captured 50 percent of the worldwide PDA market, while Microsoft Windows CE PDAs had 28 percent.

In a big push to recapture its flagging product development, Palm has rolled out a new entry-level PDA, the $99 Zire.

Kort pointed out that, ironically, the Zire does not have SD or MMC capabilities.

"Because the Zire is a rare PDA that does not include a SD slot and by not including one they are in effect saying SD is not important," he said. "As such, Palm is talking out of both sides of their mouth about the importance of SD and SD media."