Acer Casts Aside Windows CE in Favor of Palm OS

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.

The deal between Acer and Palm will be formally announced June 1, with a
Palm executive flying in for the festivities. No further details of the
agreement have been revealed.

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

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