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Palm Extends Mobile Enterprise Arm

Among the ruins of a technology company wasteland where weak business models and the firms that pose them are blowing away on the wind, stronger firms are soldiering on by shifting market schemes. In a time where highly-regarded companies are laying off scores of employees or consolidating their businesses, Palm Inc. is one of the stronger firms.

On Wednesday, the 60-percent market share holder of handheld computers shelled out $264 million in stock for Extended Systems, a purchase that caused industry watchers to sit up and take notice -- and not just because it's Palm's largest buy to date.

Palm seems to be making significant inroads in the mobile enterprise market, already buoyed by Research-In-Motion (RIM, of Blackberry wireless pager fame), Puma Technologies and AvantGo.

Francesca Mabarak, senior analyst in Yankee Group's Wireless/Mobile Technologies division, told InternetNews.com the move looked like a strong play for Palm Inc.

"This will have a tremendous effect on Palm as they try to maintain market share with an obvious momentum being created by RIM. Extended Systems is an excellent company with a good vision for the enterprise market," Mabarak said. "If Palm is going to gutsier with offerings, then they got a great deal with Extended Systems."

Ditto Scott Nania, an Internet technology consultant for About.com, who touched on the fact that Extended is one of the Bluetooth wireless technology founders.

"Extended gives them good penetration into the market and continues their push to become a major player as software solutions provider," Nania told InternetNews.com. "It also gives them an edge in the Bluetooth arena. Instead of watching Bluetooth develop from the outside now they are an insider and can steer the development to a certain degree.

Extended, Explained

While analysts see the potential in different facets of a bullish prism, the question remains what Palm, the acknowledged leader in handheld computer manufacturing and a 3Com spinoff, will do with it. Simply, Extended Systems makes an enterprise software synchronization solution (called, easily enough, Extended System) that brings Palm's operating system behind the firewall with access to applications.

Extended System is compatible with Windows products, RIMs, and Symbian devices. The company boasts more than a thousand enterprise customers, which translates to more than 100,000 end-users.

Goldman Sachs, which pegs the mobile enterprise market at $13 billion by 2005, said in a recent research report that Extended System's solution covers the recurring service aspects of this market, which is about $6.3 billion. GS allotted an additional $3 billion of its valuation for Extended's solution for add-ons. So how will Palm use this solution?

GS said Palm will use the company's apps to complement its pending VII release, which will feature corporate e-mail and enterprise applications.

Palm, which also said this week that it would reorganize into three distinct groups (the Enterprise Solutions Group, the Individual Solutions Group, and the Platform Solutions Group), plans to incorporate Extended Systems' middleware as part of its wireless service bureau, slated to launch next quarter.

Market Impact

Accordingly, the positive news has caused analysts to come out and issue "buy," or even "strong buy" ratings. Eric Rothdeutsch, a semiconductors and computer hardware analyst for Robertson Stephens, said the news was favorable.

"We feel that Extended Systems is a solid addition to the company's wireless and mobile strategy with its enterprise-class mobile infrastructure software and multiple operating system support," Rothdeutsch said. "We are reiterating our buy rating and 12-month price target of $35."

Tom Sepenzis, executive director of CIBC Worldmarkets, said Palm has made headway in a niche w