Palm Pays $44M For Perpetual OS License

Palm said today it will pay $44 million to Japan’s Access Systems for a perpetual
license of the operating system used by Treo smartphones and PDAs. The
agreement ensures current and future Palm devices remain compatible with
Palm’s Garnet operating system.

Palm, which also licenses Microsoft’s Windows Mobile 5.0 Pocket PC Edition
OS, said the one-time payment avoids yearly royalties to Access worth tens
of millions of dollars.

The arrangement “gives Palm increased ability to innovate on the Palm OS
Garnet base, and to effectively differentiate Palm products long into the
future,” Mark Bercow, Palm’s senior vice president of business development,
said in a statement.

According to the agreement, mobile technology firm Access will expand the licensing terms with Palm,
covering all current and future Palm products, “regardless of the underlying
operating agreement.”

The new licensing will let Palm developers modify the Palm OS to suit the
needs of the Treo roadmap rather than Access’ future Linux-based ALP
operating system, spokeswoman Marlene Somsak told internetnews.com.

Palm will retain rights to any modifications it makes to the Palm OS.

Following a 2003 decision to split
Palm into two separate companies, one devoted to software and one to hardware,
Access Systems in 2005 paid $324 million to
acquire PalmSource, the unit that developed the Palm OS. The same year, PalmOne, the
second Palm spin-off company, renamed itself Palm Inc.

“This is a survival thing,” according to Gartner analyst Ken Dulaney. While
the Windows Mobile-based Treo wouldn’t be affected, Palm OS would probably die
without a long-term license, Dulaney said.

With or without a long-term license, Palm OS will likely be history within
five years, according to Dulaney.

Palm said it remains committed to enhancing the Palm OS, a nod to possible
concern by developers over the company’s decision to also support Windows
Mobile 5.0.

“[Palm] will probably go somewhere else,” Dulaney said. The likely
destination is a Palm OS based on Linux,
similar to the operating system Access is selling to phone companies, the
analyst suggested.

In related news, Palm said it will announce second-quarter financial results on Dec. 19. Last month, Palm projected second-quarter results would be between $390 million and $395 million.

Palm CEO Ed Colligan blamed the lower-than-expected numbers on a delay in
the U.S. certification of its Treo 750.

A Merrill Lynch analyst at the time said the earnings shortfall was Palm’s “third
consecutive misstep” behind increased competition from Motorola’s Q and the
delayed European launch of the Treo 750v.

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