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PalmSource Questions Sony's Bid

Sony chairman and CEO, Nobuyuki Idei said he would be more than happy to acquire Palm's software division, according to Web site AlwaysOn.

But that kind of outright purchase is unlikely, according to PalmSource CEO David Nagel.

Nagel dismissed the suggestion as old news and told internetnews.com the company has heard similar rumors in the past, but they are just that - rumors.

"He said the same thing at the World Economic Forum in Davos back in January. We won't comment on those types of rumors," Nagel said.

Sunnyvale, Calif.-based PalmSource is on the cusp of officially cutting operating ties with its parent company, Palm Inc. Nagel said a lot of time and effort went into the separation. All that is left is some paperwork filings with the Securities and Exchange Commission (SEC) as well as some shareholder logistics. Shareholders are expected to get their first taste of how well PalmSource can do on its own during its March 20 call to investors.

"Because Palm has been itemizing its earnings reports for the last year, you will be able to see where we are in profitability and a year-over-year comparison," Nagel said.

But after investing $20 million and a 6 percent stake in PalmSource , Idei says he's ready to take it all over -- if he had the chance and if they are willing to sell.

"I really want to own either Symbian or Palm -- I want to buy them. Three years ago the Palm was so simple, but it is getting better and better. My problem now is that as Palm licensee we have to pay them lots of money. Palm is like Apple -- we don't know if they are a software company or a hardware company. But they have now split in two."

The media device and entertainment czar said his operating system strategy has been somewhat skewed considering Sony has a Symbian OS on its phones and Palm OS on its PDAs.

"Even Bill Gates asked me if I was crazy," Idei quipped.

If Sony were to buy Palm's spin-off, now might be the right time. Staffing levels have been trimmed by 18 percent. Palm's stock has been hammered, dropping nearly 50 percent in the last two months and the official split has not been finalized.

And Palm's operating system is the largest player in the field. The OS is used by more than 57 percent of the handheld users worldwide. As of December 2002, more than 25 million Palm Powered devices have been sold, over 250,000 developers have created more than 15,000 applications.

PalmSource's market share has been holding the line, with recent reports showing Palm powered devices gaining ground in France (rising from 52 percent to 64 percent), and the U.K. (from 42 percent to 50 percent). The rise is being attributed to PalmSource licensees releasing new products equipped with Palm OS 5, the latest version of the Palm operating system.

In the smartphone division, Palm's OS held an 89 percent share in the US during the third quarter of 2002. Analyst firm IDC's stats suggest that three of the top six worldwide smart phone vendors' products were Palm Powered -- Handspring and Treo 300; Kyocera's 5135 Palm Powered flip-phone; and Samsung with its i330 smart phone. Other major players using Palm's smart phone include Alphasmart, with its Dana device and the Sony Clie NX 70v.

Idei also indicated he would consider purchases of both Apple Computer and Symbian, a joint company by palmtop computer maker Psion; mobile phone giants Motorola, Nokia, Sony Ericsson; electronics powerhouse Matsushita Communication; and Siemens. The consortium develops and licenses a software operating system (OS) for mobile phones and handheld devices. None of the companies contacted would comment on Sony's claims.

"In terms of our OS strategy, it is not clear whether Symbian, which we share with the Nokia phones, is the right way to go for the mobile phone," said Idei.

In another blow to PalmSource, chief product officer and longtime software developer Steve Sakoman has rejoined Apple Computer this week as a vice president.

Nagel said no replacement has been named and he is currently considering spitting up the duties among the remaining development staff.

Editor's note: PalmSource CEO David Nagel's comments were recorded during a Q&A interview, which will appear in its entirety this Friday on internetnews.com.