Palm Delays PalmSource Split

Palm Thursday said it would have to wait a little longer to officially separate its PalmSource subsidiary from the parent company.

During its third quarter earnings report, the Santa Clara, Calif.-based handheld computer maker said even with the blessing of the IRS and investors, market conditions were not ripe enough to justify the move.

Instead of splitting off this spring, CEO Eric Benhamou said the company will target this summer as the timeframe for the separation.

“The progressive recovery of the handheld industry is continuing, although still held back by weak economic fundamentals. We are pleased to post the first profitable quarter of our PalmSource subsidiary. Palm is determined to return to sustained profitability, without sacrificing its participation in the growth drivers of the next chapter in the handheld industry,” said Benhamou.

When the company finally does separate, PalmSource will be publicly traded on the NASDAQ under a new symbol. The physical separation of staff and offices has already been completed.

PalmSource CEO David Nagel was still optimistic about his new company’s chances saying earnings were up for his division and developer support is at an all-time high, numbering upwards of 260,000.

For the quarter, Palm Inc. reported a net loss of $172.3 million, or $5.93 a share, compared with net income of $2.9 million, or 10 cents a share, a year earlier.

But while the Palm OS still dominates the handheld market in both hardware and software, other players are gaining in market share.

In November 2002, International Data Corp. (IDC) said that a survey of about 1,000 members of its Mobile Advisory Council showed the Palm OS remained entrenched in the healthcare, education and government vertical markets, but Microsoft’s Windows CE/Pocket PC is now the preferred platform for mobility solutions within field sales/service and utilities segments.

Palm says it managed to hold onto the 80 percent share it boasted during the December 2001 holiday period, according to retail sales figures compiled by NPD Intelect in December 2002. Palm hailed that result, noting that the 2002 holiday season saw the introduction of lower-priced handhelds and increased promotional spending by licensees of rival operating systems.

The company also laid off about 250 people in both its Palm Solutions hardware division and its PalmSource software subsidiary in advance of the separation. The headcount reductions leave Palm with a total of 1300 staff and contractors.