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Palm, Inc.

Palm, Inc.

950 West Maude Avenue
Sunnyvale, California 94085
U.S.A.
Telephone: (408) 617-7000
Toll Free: (800) 881-7256
Fax: (408) 617-0100
Web site: http://www.palm.com

Public Company
Incorporated:
1992 as Palm Computing, Inc.
Employees: 907
Sales: $1.27 billion (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: PALM
NAIC: 334111 Electronic Computer Manufacturing

Palm, Inc. is a leading producer of handheld computing products. The company that led the market for personal digital assistants (PDAs) has adapted its offerings to be ever more handy. After acquiring rival Handspring, Inc., Palm inherited a top product, the Treo. The company spun off its software unit in 2003, and in 2005 entered separate deals to license software from rivals Microsoft Corporation and Research in Motion Ltd. (RIM) to counter competition from RIM's Blackberry and a slew of competitors from the mobile phone and computer industries.

Silicon Valley Origins

Palm Computing, Inc. was established in January 1992. Its founder, Jeff Hawkins, was formerly vice-president of Grid Systems Corp. and was credited with designing that company's line of pen computers. President and COO Donna Dubinsky was a cofounder of Claris Corp.

Tandy Corporation sponsored Palm Computing's first product: the Zoomer (marketed as the Casio Z-7000 and the Tandy Z-PDA) handheld device that was developed in cooperation with Casio Computing Inc. Three California venture capital firms also backed the company.

Palm soon introduced add-on software for connecting Zoomers to PCs. Other early products were the PalmPrint and PalmOrganizer devices based on the Geos operating system developed by Geoworks of Alameda, California. Sharp used these technologies in its PT-9000 handheld pen tablet machine.

In 1994, Palm began marketing itself as a third-party developer for other makers of handheld computing devices, extending beyond the Geos operating system. Three other platforms were under consideration: Apple's Newton Intelligence, Microsoft's WinPad, and General Magic Inc.'s MagicCap.

In September 1994, Palm debuted its Graffiti handwriting recognition software. Until that time, users of personal digital assistants usually entered information by choosing selections on a tiny screen with a little plastic stylus. Adding any kind of practical keyboard would make the devices too large to carry in one's pocket. Apple's Newton already had a limited handwriting recognition capability, but Palm's Graffiti could be used for taking notes or sending e-mail. It boasted 100 percent accuracy and a speed to rival typing. Graffiti required users to modify their handwriting somewhat, omitting, for example, the cross bar in the letters "A" and "F" and writing the letter "L" in mirror image. Palm claimed the system could be learned in 20 minutes and mastered in a couple of hours. Palm offered the software for the Newton, Magic Cap, and other PDAs. Giant modem manufacturer U.S. Robotics, based in Skokie, Illinois, acquired Palm in September 1995 for $44 million. Palm was based in Los Altos, California.

A New Pilot in 1996

Palm introduced its new, simplified PDA, called the Pilot, in the spring of 1996. Rather than attempting to stand alone as a computer, the Pilot was designed to easily and quickly exchange information with a PC. It sat in a cradle that was plugged into the desktop computer.

According to Time, venture capitalists in Silicon Valley doubted users would buy a device with as few features as the Pilot offered. However, the very key to the Pilot's success was its Zen-like simplicity. While designing it, Hawkins carried an uncarved block of wood in his shirt pocket for months, tapping on it while deciding the key features the Pilot needed. Eventually, four functions emerged: a calendar, address book, to-do list, and memo section.

The tiny new device measured just 4.7 inches long, 3.2 inches wide, and 0.7 inches thick. It used ubiquitous miniature flashlight batteries that lasted for months. The basic Pilot 1000 retailed for $299, half the price of a Newton. It could hold 500 addresses and 600 appointments. The Pilot 5000 had four to five times the memory and sold for $369.

It took a few months for the Pilots to catch on, but soon they were appearing all over. Palm shipped more than a million of them in their first year and a half, a faster launch than Sony Walkmans, pagers, and mobile phones. They certainly outsold all other PDAs. The GridPad that Hawkins had designed nearly ten years earlier was simply too big. The expensive Apple Newton failed in the mass marketplace. The Sharp Wizard and the Hewlett Packard 200LX were limited to tiny niches of gadget enthusiasts.

In the face of Palm's success, Microsoft rushed out its Windows CE 1.0 operating system in its haste to dominate yet another market. The units that used it, equipped with tiny keyboards, offered more features than the Pilot but were difficult to use. They failed to threaten Palm's position; the company controlled two-thirds of the handheld market at the end of 1997.

New Competition and New Ownership in Late 1990s

Microsoft released its updated CE 2.0 software in November 1997 and called its new handhelds "Palm PCs," quickly landing it in court for alleged trademark infringement. Seven companies, including Casio and Philips, allied with Microsoft in developing their own feature-packed handhelds running the CE 2.0 operating system. They generally proved more complex to use than the Pilot. (Palm soon began referring to its devices by company name and model number.)

Palm continuously updated the Pilot's design. It introduced a modem for it in 1997. However, its software was not well received and third party developers moved to quickly fill the void. The Palm III was introduced in March 1998. It could exchange information with other Palm IIIs via a wireless infrared transmission. Time magazine documented the phenomenon of strangers swapping video games, contact information, and subway maps by this "beaming." Other new features included refined styling, a protective lid, and more memory.

Palm kept its own offerings relatively simple, leaving 5,000 outside parties to develop software and hardware add-ons. Users could now link with the Internet, corporate networks, and pagers. The Palm III sold for $399. Wireless modems (supplied by Novatel, JP Systems, and Metricom) sold for $350-$400 and doubled the size of the unit.

3Com, based in Santa Clara, California, had acquired U.S. Robotics in June 1997. 3Com manufactured networking adapters and switches. With sales of $570 million Palm accounted for nearly 10 percent of 3Com's revenues in the 1998/99 fiscal year. 3Com CEO Eric Benhamou saw the unit as the centerpiece of a revitalized 3Com, according to the Wall Street Journal. In fact, although Dubinsky claimed it attracted little interest at the time of the acquisition, Palm Computing emerged as the best part of the merger with U.S. Robotics, which had left 3Com with massive excess modem inventories and other difficulties in combining the two product lines.

Dubinsky and Hawkins left 3Com in 1998 because it would not spin off Palm as a separate company. They formed Handspring Inc. and used licensed Palm software in their own, lower-priced device, called the Visor, which was introduced in September 1999. It featured a slot for effortlessly adding a variety of hardware modules, such as digital music players and cameras. (PalmPilots did have a serial port for adding peripherals.)

By this time, Palm held an 85 percent market share, and was aggressively licensing its proprietary Palm OS operating system. Computer Reseller News reported that Microsoft had turned its attention towards secondary functions beyond organizing data, such as playing music clips and video games.

The new Palm VII arrived in 1999. The handy organizer had morphed into a full-time wireless telecommunications device. It was priced at $599, plus an additional monthly fee ($10-$40) for Palm.net service based on usage. Although its tiny screen could not display all the contents of a typical web page, Palm had lined up more than 1,000 Internet content developers willing to accommodate the Palm VII.

Compaq Computer Corporation unveiled another lower-priced competitor, the Aero 1500, in September 1999. Hewlett-Packard Co.'s Jornada 430, priced the same as the Palm VII, debuted the same month. The Jornada featured a color screen.

3Com picked a new CEO for Palm in December 1999: Carl J. Yankowski, head of the Reebok Brand athletic shoe division of Reebok International Ltd. He also had experience with Sony Corporation, PepsiCo, Inc., Polaroid Corporation, and General Electric Co.

Company Perspectives:

Palm, Inc. is a leader in mobile computing and strives to put the power of computing in people's hands so they can access and share their most important information. The company's products for consumers, mobile professionals and businesses include Palm Treo smartphones, Palm LifeDrive mobile managers and Palm handheld computers, as well as software, services and accessories. Palm's products are equipped with a comprehensive suite of Personal Information Management (PIM) software, infrared beaming capabilities, calculators, note-taking applications, and games. A range of additional features, including hi-res color screens, wireless capabilities (Bluetooth, Wi-Fi, cellular), MP3 software and digital cameras, ensures that there's a Palm product to meet almost any user's needs.

Palm controlled 70 percent of the organizer market; a few progressive corporate network administrators were buying PalmPilots by the hundreds. Sales were growing 65 percent a year. Organizers still accounted for 99 percent of revenues in spite of the emphasis the company was making on licensing its software to other companies, such as America Online Inc. and Motorola Inc.

Qualcomm Inc. and Nokia used Palm OS in their most advanced mobile phones. However, Palm saw smarter mobile phones as the company's second biggest competitive threat after Microsoft. Nokia was also a member of the Symbian consortium, which was developing its own operating system for wireless Internet devices. Handspring and Telefon AB L.M. Ericsson were also members of this effort.

In this rapidly changing industry, competitors often had to cooperate. For example, Palm's organizers were designed to work with the Windows-based programs running on PCs. Palm's struggles and victories were cited by opposing sides at the Microsoft antitrust trial.

2000 IPO

Palm Inc.'s IPO in March 2000 displayed high-tech speculation at its most febrile. Priced at $38, shares reached $165 each before closing at $95, giving Palm a market valuation of $53 billionmore than that of General Motors and McDonald's, and more than that of its parent company, 3Com, valued at $28 billion. At the time 3Com still owned 94 percent of Palm's stock; however, in July it completed the distribution of its remaining shares to stockholders.

A revamped Microsoft operating system appeared in a series of Pocket PC devices launched by Hewlett-Packard, Compaq, and Casio in April 2000. The Pocket PC enjoyed a sleeker design than the somewhat boxy Pilots. According to the Wall Street Journal, independent programmers who developed Palm-based software remained intensely loyal, often refusing to adapt applications for the rival Windows CE systems. Palm claimed to have 70,000 third-party developers registered in the middle of 2000, up from only 3,000 at the beginning of 1999. Many of these had modest operations, some distributing their programs over the Internet as shareware. In contrast, Microsoft had licensed 200 companies to work on Pocket PC programs; many were larger companies.

Revenues in the last quarter of 1999/2000 were more than double those of the previous year. Suppliers of display screens and memory had difficulty keeping up with ever accelerating demand. A few faulty memory chips were allowed into production; Palm offered a software fix. Full-year sales exceeded $1 billion.

2001 Slowdown

Boosting its wireless Internet services, Palm bought AnyDay.com, which produced Internet-based calendars, in June 2000 for $80 million in cash and stock options. It had also bought e-mail provider Actual Software Corp. Palm planned to offer expansion slots in its organizers by early 2001, an area where it lagged behind Visor and Pocket PC devices. Personal electronics powerhouse Sony was preparing to introduce its own PDA.

In a race to develop more advanced features in a shrinking market, Palm and its rivals were buying companies for their technology. Palm bought several over the year. It acquired Portland wireless-synchronization expert WeSync for about $40 million in late 2000. Handspring, Inc. made its first acquisition, picking up Bluelark Systems Inc. of Mountain View, California, in a $16 million stock swap. Bluelark made Internet tools for handhelds.

These purchases were not able to forestall a collapse in the handheld computer market in a slowing economy. A two-months premature announcement of the company's new m500 and m505 models did not help sales of units already in stores.

As Palm's share price began to evaporate, it had to cancel a plan to acquire Boise's Extended Systems, Inc., a wireless technology producer for the corporate market, for $264 million in stock.

In May 2001, the once high-flying Palm laid off employees for the first time and put the brakes on a planned 11-building headquarters complex. As the year progressed, PDA manufacturers introduced deep discounts to keep the machines moving.

Hoping to increase PDA use before the days of widespread wireless Internet, Palm provided infrared beaming stations to a wide range of partners. PDA users at certain sites could beam relevant information at a number of kiosks, including newspaper stories and transit schedules at train stations; special offers at retailers such as Banana Republic; and movie listings at theaters.

Palm acquired the Be operating system of former Apple exec Jean-Louis Gassee in August 2001 for $11 million in stock. Be boasted impressive Internet and multimedia capabilities. The acquisition included engineering talent to bolster Palm's Platform Solutions Group. Palm had divided into two business units dedicated to hardware and software, respectively, in July 2001. The company was hoping the separation would improve operating system sales to other manufacturers. The new software unit was dubbed PalmSource and led by former Apple exec David Nagel. A former Gateway exec led the hardware unit.

Key Dates:

1992:
Palm Computing, Inc. is founded.
1995:
U.S. Robotics acquires Palm for $44 million.
1996:
New PalmPilots revolutionize handheld computing.
1997:
3Com acquires U.S. Robotics.
1998:
Palm founders leave to start rival Handspring, Inc.
2000:
Palm goes public in March with a staggering opening day valuation of $53 billion; 3Com distributes all remaining shares in Palm to its stockholders in July.
2001:
Palm begins first layoffs in economic slowdown.
2003:
Palm, Inc. spins off PalmSource software unit, acquires Handspring, Inc.; PalmOne, Inc. is formed.
2005:
PalmOne renamed Palm, Inc.

Not only did Palm have to deal with the familiar threat posed by Microsoft, but there was a new threat to confront: the Blackberry, a wildly popular handheld pager and wireless e-mail system developed by Ontario's Research in Motion, Ltd. Mobile phone manufacturers were also edging into traditional PDA territory by adding new features to their phones.

Palm and its rivals countered the Blackberry threat by developing their own wireless Internet products. Handspring produced a new hybrid device called the Treo that could make voice calls and check e-mail. However, the expensive new product hit resistance from the mobile phone networks it depended on, and Handspring, too, began losing money.

Palm was also trying to increase its presence in the corporate market by offering features such as wireless database access and high security, noted the San Francisco Chronicle. Medical doctors, who appreciated ready access to tons of technical data, formed an important niche market. Palm's hardware business soon developed two main product lines: the high end Tungsten brand for professionals, and the Zire brand for new users and students.

Palm had a relatively broad range of products and leaned toward less expensive price points: a Zire sold for as little as $99. By the 2002 Christmas shopping season, its distribution had expanded to such high volume markets as QVC and Target.

2003 Spinoff

PalmSource, the company's software unit, won control of the Palm brand as the company split into two parts, which relocated into separate headquarters in August 2002. The hardware business was dubbed the Palm Solutions Group.

Palm CEO Carl Yankowski had resigned in November 2001; he was one of numerous executives to leave the company during the restructuring. His duties were taken by company Chairman Eric Benhamou. Benhamou, a native of Algeria, had designed Palm's spinoff from 3Com, noted the Wall Street Journal.

In June 2003, Palm, Inc. announced it was purchasing rival Handspring in a stock swap (worth $240 million when the deal closed in October). The Wall Street Journal noted Handspring had been valued at $9 billion in its heyday. Both companies' workforces had been greatly scaled back by this timeHandspring had 250 employees to Palm's 800and there were plans for another round of layoffs at the combined company. In October 2003, Palm, Inc. spun off PalmSource, its software unit, while the original company, which retained the hardware operations, was renamed PalmOne, Inc.

According to Business Week, palmOne still led the traditional PDA market with a 40 percent share, while Handspring had become a niche player in the emerging "smartphone" market, which was exploding. Handspring's gamble on these combination devices came too early to pay off for Handspring, but would help save palmOne. The $399 Treo Smartphone became a hit among gadget-rich professionals who could use it to replace their PDAs, mobile phones, cameras, and MP3 players.

PalmOne was renamed Palm, Inc. in July 2005 after it bought the remaining rights to use of the Palm name for $30 million. The software business, PalmSource, had not succeeded in conquering the operating system market, observed the San Francisco Chronicle; Palm was still its main customer.

Still more new products were being launched. Palm introduced its LifeDrive line, which featured four gigabyte hard drives, in the spring of 2005. Later in the year, Palm signed separate deals with two of its archrivals. In September, it announced it was developing a Treo with Microsoft's operating system to help stave off competition from Research in Motion's Blackberry. The next month, it announced a pact to put Research in Motion's wireless e-mail software on its Treo 650.

Principal Subsidiaries

Palm Comércio de Aparelhos Eletrônicos Ltda. (Brazil); Palm Europe Limited (UK); Palm Italy S.r.l.; PalmOne France; PalmOne Germany GmbH; Palm Global Operations Ltd. (Ireland); Palm Asia Pacific Limited (Hong Kong); PalmOne Ireland Investment; Palm Latin America, Inc. (USA); PalmOne Mexico S.A. de C.V.; Palm Benelux B.V. (The Netherlands); Palm Australasia Pty Limited (Australia); Palm Canada Inc.; Palm Singapore Pte. Ltd.; Palm Nordic AB (Sweden); PalmOne, K.K. (Japan); Handspring International SARL (Switzerland); Handspring International Ltd. (BVI); Handspring Facility Company LLC.

Principal Competitors

Dell Inc.; Hewlett-Packard Company; Nokia Oy; Research in Motion Ltd.; Sony Corp.

Further Reading

Alsop, Stewart, "Innovative Graffiti Might Actually Make PDAs Useable," InfoWorld, September 26, 1994, p. 130.

Bransten, Lisa, and Scott Thurm, "For Palm Computers, an IPO and a Flashy Rival," Wall Street Journal, September 14, 1999, p. B1.

Brewin, Bob, "Palm's Mace Is Officially 'Paranoid' About PocketPC," Computerworld, April 17, 2000, p. 12.

Buckman, Rebecca, "Microsoft to Unveil Pocket PCs in Big Rematch with Palm Inc.," Wall Street Journal, April 18, 2000, p. B6.

Clark, Don, and Ted Bridis, "Palm Is Cited by Both Sides of Microsoft Case," Wall Street Journal, May 4, 2000, p. B6.

Croal, N'Gai, "The World in Your Hand," Newsweek, May 31, 1999, p. 22.

Edwards, Cliff, "Palm Reaches Out for a Hand; But Will a Merger with Handspring Be Enough to Fend Off Ferocious Rivals?," Business-Week, November 3, 2003, p. 74.

Fost, Dan, "PalmOne to Go Back to Its Old Name," San Francisco Chronicle, May 25, 2005, p. C1.

Gore, Andrew, "Never Say Never Again," Macworld, July 2000, p. 23.

Guth, Robert A., "Microsoft, Palm Unite to Fight Blackberry," Wall Street Journal, September 25, 2001, p. B1.

Hua, Vanessa, "Betting on Beaming; Palm Hopes Infrared Stations Expand Audience for PDAs," San Francisco Chronicle, July 5, 2001, p. E1.

, "Palm Gears Up for New Go-Around in PDA Market," San Francisco Chronicle, October 14, 2002, p. E1.

, "Palm Grabs at Corporate Customers," San Francisco Chronicle, June 17, 2002, p. E1.

Hwang, Diana, "Palm Grasps Handheld Market," Computer Reseller News, May 2, 1994, p. 62.

Jackson, David S., "Palm-to-Palm," Time, March 16, 1998, pp. 42-44.

Mossberg, Walter S., "The PalmPilot Has Some New Rivals But No Competition," Wall Street Journal, July 2, 1998, p. B1.

, "A Palm-Size Computer That's Easy to Use and Cheap, Finally," Wall Street Journal, March 28, 1996, p. B1.

Nakache, Patricia, "Secrets of the New Brand Builders," Fortune, June 22, 1998, pp. 167-70.

Nasri, Jennifer, "Investor Frenzy Causes Palm Inc.'s Market Valuation to Soar," Weekly Corporate Growth Report, March 13, 2000.

Norr, Henry, "Palm Snags Be Assets, Engineering Team," San Francisco Chronicle, August 17, 2001, p. B1.

Pui-Wing Tam, "Army of Programmers Helps Palm Keep Its Edge; Loyal Independent Designers Decline to Adapt Software for Rival Microsoft System," Wall Street Journal, June 1, 2000, p. B1.

, "For Palm, Splitting in Two Isn't Seamless," Wall Street Journal, June 27, 2002, p. B4.

, "Handspring Plans Line of Hybrid Devices," Wall Street Journal, October 15, 2001, p. B7.

, "No Room to HedgeNew Tech Dilemma: Big Bets Now Mean Other Projects Die," Wall Street Journal, May 14, 2003, p. A1.

, "Palm Plans Slot for Hand-Held Devices to Offer Memory Boost, More Functions," Wall Street Journal, June 27, 2000, p. B8.

, "Palm Profit Jumps 82 Percent, Beats Forecasts," Wall Street Journal, June 29, 2000, p. B10.

, "Palm's Fortunes Take a Tumble, Pressuring CEO," Wall Street Journal, June 4, 2001, p. B1.

, "Palm's Founders to Get IPO at Handspring," Wall Street Journal, June 15, 2000, p. B1.

, "Palm to Buy Handspring as Hand-Helds Morph into Phones," Wall Street Journal, June 5, 2003, p. B1.

, "Palm to Create Separate Subsidiary for Key Software-Platform Group," Wall Street Journal, July 30, 2001, p. B4.

, "Palm Treo to Use RIM's Software As Rivals Team," Wall Street Journal, October 17, 2005, p. B7.

, "Pilot Error: How Palm Tumbled from Star of Tech to Target of Microsoft," Wall Street Journal, September 7, 2001, p. A1.

, "That Nosy Shopper May Be a Handspring ExecutiveAs Hand-Held Battle Heats Up, Companies' Agents Monitor Store Displays, Sales Spiels," Wall Street Journal, November 29, 2000, p. B1.

Pui-Wing Tam, and Mahvish Khan, "Hand-Held Makers Slash Prices and Rev Up Promotions As Sales SlowEconomy and Gadget Fatigue Hurt the Pocket Computers," Wall Street Journal, August 2, 2001, p. B1.

Quittner, Joshua, "PCs? Forget 'Em!," Time, May 8, 2000, p. 105.

Sears, Steven M., "Palm IPO Soars, Then Retreats a Bit, Pushing Traders to Unwind Options in Parent 3Com," Wall Street Journal, March 3, 2000, p. C26.

Stirpe, Amanda, "Can Palm Hold On?," Computer Reseller News, October 18, 1999, pp. 117-18.

Thurm, Scott, "Palm Inc. Gets Ready for New Hands," Wall Street Journal, February 28, 2000, p. B1.

, "3Com Faces Bleaker Future Without Palm," Wall Street Journal, March 9, 2000, p. B6.

, "3Com Names Yankowski to CEO Post at Soon-Independent Palm Computing," Wall Street Journal, December 3, 1999, p. B5.

Wildstrom, Stephen H., "The PalmPilot Flies Higher," Business Week, Industrial/Technology Edition, March 23, 1998, p. 20.

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Palm, Inc.

Palm, Inc.

5470 Great America Parkway
Santa Clara, California 95052
U.S.A.
Telephone: (408) 326-9000
Fax: (408) 326-7565
Web site: http://www.palm.com

Public Company
Incorporated:
1992 as Palm Computing, Inc.
Employees: 632
Sales: $1.06 billion (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: PALM
NAIC: 334111 Electronic Computer Manufacturing

Since its inception, Palm, Inc. has made personal digital assistants (PDAs) popular as no other company has. The company has sold more than seven million of its devices in 35 countries. Its ingenious PalmPilot has attracted an enthusiastic following, allowing it to protect its controlling market share from rival PDAs powered by Microsoft Corporations Windows CE operating system.

Silicon Valley Origins

Palm Computing, Inc. was established in January 1992. Its founder, Jeff Hawkins, was formerly vice-president of Grid Systems Corp. and was credited with designing that companys line of pen computers. President and COO Donna Dubinsky was a cofounder of Claris Corp.

Tandy Corporation sponsored Palm Computings first product: the Zoomer (marketed as the Casio Z-7000 and the Tandy Z-PDA) handheld device that was developed in cooperation with Casio Computing Inc. Three California venture capital firms also backed the company.

Palm soon introduced add-on software for connecting Zoomers to PCs. Other early products were the PalmPrint and PalmOrganizer devices based on the Geos operating system developed by Geoworks of Alameda, California. Sharp used these technologies in its PT-9000 handheld pen tablet machine.

In 1994, Palm began marketing itself as a third-party developer for other makers of handheld computing devices, extending beyond the Geos operating system. Three other platforms were under consideration: Apples Newton Intelligence, Microsofts WinPad, and General Magic Inc.s MagicCap.

In September 1994, Palm debuted its Graffiti handwriting recognition software. Until that time, users of personal digital assistants usually entered information by choosing selections on a tiny screen with a little plastic stylus. Adding any kind of practical keyboard would make the devices too large to carry in ones pocket. Apples Newton already had a limiting handwriting recognition capability, but Palms Graffiti could be used for taking notes or sending e-mail. It boasted 100 percent accuracy and a speed to rival typing. Graffiti required users to modify their handwriting somewhatomitting, for example, the cross bar in the letters A and F and writing the letter L in mirror image. Palm claimed the system could be learned in 20 minutes and mastered in a couple of hours. Palm offered the software for the Newton, Magic Cap, and other PDAs.

Giant modem manufacturer U.S. Robotics, based in Skokie, Illinois, acquired Palm in September 1995 for $44 million. Palm was based in Los Altos, California.

A New Pilot in 1996

Palm introduced its new, simplified PDA, called the Pilot, in the spring of 1996. Rather than attempting to stand alone as a computer, the Pilot was designed to easily and quickly ex-change information with a PC. It sat in a cradle that was plugged into the desktop computer.

According to Time, venture capitalists in Silicon Valley doubted users would buy a device with as few features as the Pilot offered. However, the very key to the Pilots success was its Zen-like simplicity. While designing it, Hawkins carried an uncarved block of wood in his shirt pocket for months, tapping on it while deciding the key features the Pilot needed. Eventually, four functions emerged: a calendar, address book, to-do list, and memo section.

The tiny new device measured just 4.7 inches long, 3.2 inches wide, and 0.7 inches thick. It used ubiquitous miniature flashlight batteries that lasted for months. The basic Pilot 1000 retailed for $299, half the price of a Newton. It could hold 500 addresses and 600 appointments. The Pilot 5000 had four to five times the memory and sold for $369.

It took four months for the Pilots to catch on, but soon they were appearing all over Hollywood. Palm shipped more than a million of them in their first year and a halfa faster launch than Sony Walkmans, pagers, and mobile phones. They certainly outsold all other PDAs. The GridPad that Hawkins had designed nearly ten years earlier was simply too big. The expensive Apple Newton failed in the mass marketplace. The Sharp Wizard and the Hewlett Packard 200LX were limited to tiny niches of gadget enthusiasts.

In the face of Palms success, Microsoft rushed out its Windows CE 1.0 operating system in its haste to dominate yet another market. The units that used it, equipped with tiny keyboards, offered more features than the Pilot but were difficult to use. They failed to threaten Palms position; the company controlled two-thirds of the handheld market at the end of 1997.

Microsoft released its updated CE 2.0 software in November 1997 and called its new handhelds Palm PCs, quickly landing it in court for alleged trademark infringement. Seven companies, including Casio and Philips, allied with Microsoft in developing their own feature-packed handhelds running the CE 2.0 operating system. They generally proved more complex to use than the Pilot. (Palm soon began referring to its devices by company name and model number.)

Palm continuously updated the Pilots design. It introduced a modem for it in 1997. However, its software was not well received and third party developers moved to quickly fill the void. The Palm III was introduced in March 1998. It could exchange information with other Palm Ills via a wireless infrared transmission. Time magazine documented the phenomenon of strangers swapping video games, contact information, and subway maps by this beaming. Other new features included refined styling, a protective lid, and more memory.

Palm kept its own offerings relatively simple, leaving 5,000 outside parties to develop software and hardware add-ons. Users could now link with the Internet, corporate networks, and pagers. The Palm III sold for $399. Wireless modems (supplied by Novatel, JP Systems, and Metricom) sold for $350-$400 and doubled the size of the unit.

3Com, based in Santa Clara, California, had acquired U.S. Robotics in June 1997. 3Com manufactured networking adapters and switches. With sales of $570 million Palm accounted for nearly ten percent of 3Coms revenues in the 19987 99 fiscal year. 3Com CEO Eric Benhamou saw the unit as the centerpiece of a revitalized 3Com, according to the Wall Street Journal. In fact, although Dubinsky claimed it attracted little interest at the time of the acquisition, Palm Computing emerged as the best part of the merger with U.S. Robotics, which left 3Com with massive excess modem inventories and other difficulties in combining the two product lines.

Dubinsky and Hawkins left 3Com in 1998 because it would not spin off Palm as a separate company. They formed Hand-spring Inc. and used licensed Palm software in their own, lower-priced device, called the Visor, which was introduced in September 1999. It featured a slot for effortlessly adding a variety of hardware modules, such as digital music players and cam-eras. (PalmPilots did have a serial port for adding peripherals.)

By this time (September 1999), Palm held an 85 percent market share, and was aggressively licensing its proprietary Palm OS operating system. Computer Reseller News reported that Microsoft had turned its attention towards secondary functions beyond organizing data, such as playing music clips and video games.

The new Palm VII arrived in 1999. The handy organizer had morphed into a full-time wireless telecommunications device. It was priced at $599, plus an additional monthly fee ($10-$40) for Palm.net service based on usage. Although its tiny screen could not display all the contents of a typical web page, Palm had lined up more than 1,000 Internet content developers willing to accommodate the Palm VII.

Compaq Computer Corporation unveiled another lower-priced competitor, the Aero 1500, in September 1999. Hewlett-Packard Co.s Jornada 430, priced the same as the Palm VII, debuted the same month. The Jornada featured a color screen.

3Com picked a new CEO for Palm in December 1999: Carl J. Yankowski, head of the Reebok Brand athletic shoe division of Reebok International Ltd. He also had experience with Sony Corporation, PepsiCo, Inc., Polaroid Corporation, and General Electric Co.

Palm controlled 70 percent of the organizer market; a few progressive corporate network administrators were buying PalmPilots by the hundreds. Sales were growing 65 percent a year. Organizers still accounted for 99 percent of revenues in spite of the emphasis the company was making on licensing its software to other companies, such as America Online Inc. and Motorola Inc.

Company Perspectives

Design Philosophy: A handheld computer is not a laptop or desktop computer, the focus is on managing and accessing information rather than creating and editing documents. This unique user experience requires a unique set of guiding principlesbe simple, wearable and connected. An unwavering commitment to these principles makes Palm products ideal for customers and developers alike.

Qualcomm Inc. and Nokia used Palm OS in their most advanced mobile phones. However, Palm saw smarter mobile phones as the companys second biggest competitive threat after Microsoft. Nokia was also a member of the Symbian consortium, which was developing its own operating system for wireless Internet devices. Handspring and Telefon AB L.M. Ericsson were also members of this effort.

In this rapidly changing industry, competitors often had to cooperate. For example, Palms organizers were designed to work with the Windows-based programs running on PCs. Palms struggles and victories were cited by opposite sides at the Microsoft antitrust trial.

2000 IPO

Palm Inc.s IPO in March 2000 displayed high-tech speculation at its most febrile. Priced at $38, shares reached $165 each before closing at $95, giving Palm a market valuation of $53 billionmore than that of General Motors and McDonalds, and more than that of its parent company, 3Com, valued at $28 billion. At the time 3Com still owned 94 percent of Palms stock; however, in July it completed the distribution of its remaining shares to stockholders.

A revamped Microsoft operating system appeared in a series of Pocket PC devices launched by Hewlett-Packard, Compaq, and Casio in April 2000. The Pocket PC enjoyed a sleeker design than the somewhat boxy Pilots. According to the Wall Street Journal, independent programmers who developed Palm-based software remained intensely loyal, often refusing to adapt applications for the rival Windows CE systems. Palm claimed to have 70,000 third-party developers registered in the middle of 2000, up from only 3,000 at the beginning of 1999. Many of these had modest operations, some distributing their programs over the Internet as shareware. In contrast, Microsoft had licensed 200 companies to work on Pocket PC programs; many were larger companies.

Revenues in the last quarter of 1999/2000 were more than double those of the previous year. Suppliers of display screens and memory had difficulty keeping up with ever accelerating demand. A few faulty memory chips were allowed into production; Palm offered a software fix.

Boosting its wireless Internet services, Palm bought AnyDay.com, which produced Internet-based calendars, in June 2000 for $80 million in cash and stock options. It had also bought e-mail provider Actual Software Corp. Palm planned to offer expansion slots in its organizers by early 2001, an area where it lagged behind Visor and Pocket PC devices. Personal electronics powerhouse Sony was preparing to introduce its own PDA.

Principal Subsidiaries

Palm Computing Europe SARL (France); Palm Computing K.K. (Japan); Palm do Brasil Limitada; Palm Europe Limited (U.K.); Palm Europe Limited (Italy); Palm Europe Limited (Switzerland); Palm France; Palm Germany GmbH i.G.; Palm Global Operations, Ltd. (Ireland); Palm Hong Kong Ltd.; Palm Ireland Investment; Palm Latin America, Inc., Argentina Branch; Palm Mexico S.A. de C.V. (Mexico); Palm OS BV (Netherlands); Palm Sales Australia Pty Limited; Palm Sales Canada Inc.; Palm Singapore Sales Pte. Ltd.; Palm Sweden A.B.

Principal Competitors

Casio Computer Co., Ltd.; Microsoft Corporation; Psion; Sybase Inc.

Key Dates

1992:
Palm Computing, Inc. is founded.
1995:
U.S. Robotics acquires Palm for $44 million.
1996:
New PalmPilots revolutionize handheld computing.
1997:
3Com acquires U.S. Robotics.
2000:
Palm goes public in March with a staggering opening day valuation of $53 billion; 3Com distributes all remaining shares in Palm to its stockholders in July.

Further Reading

Alsop, Stewart, Innovative Graffiti Might Actually Make PDAs Useable, InfoWorld, September 26, 1994, p. 130.

Bransten, Lisa, and Scott Thurm, For Palm Computers, an IPO and a Flashy Rival, Wall Street Journal, September 14, 1999, p. B1.

Brewin, Bob, Palms Mace Is Officially Paranoid About PocketPC, Computerworld, April 17, 2000, p. 12.

Buckman, Rebecca, Microsoft to Unveil Pocket PCs in Big Rematch with Palm Inc., Wall Street Journal, April 18, 2000, p. B6.

Clark, Don, and Ted Bridis, Palm Is Cited by Both Sides of Microsoft Case, Wall Street Journal, May 4, 2000, p. B6.

Croal, NGai, The World in Your Hand, Newsweek, May 31, 1999, p. 22.

Gore, Andrew, Never Say Never Again, Macworld, July 2000, p. 23.

Hwang, Diana, Palm Grasps Handheld Market, Computer Reseller News, May 2, 1994, p. 62.

Jackson, David S., Palm-to-Palm, Time, March 16, 1998, pp. 4244.

Mossberg, Walter S., The PalmPilot Has Some New Rivals But No Competition, Wall Street Journal, July 2, 1998, p. B1.

______, A Palm-Size Computer Thats Easy to Use and CheapFinally, Wall Street Journal, March 28, 1996, p. B1.

Nakache, Patricia, Secrets of the New Brand Builders, Fortune, June 22, 1998, pp. 16770.

Nasri, Jennifer, Investor Frenzy Causes Palm Inc.s Market Valuation to Soar, Weekly Corporate Growth Report, March 13, 2000.

Pui-Wing Tarn, Army of Programmers Helps Palm Keep Its EdgeLoyal Independent Designers Decline to Adapt Software for Rival Microsoft System, Wall Street Journal, June 1, 2000, p. B1.

______, Palm Plans Slot for Hand-Held Devices to Offer Memory Boost, More Functions, Wall Street Journal, June 27, 2000, p. B8.

______, Palm Profit Jumps 82 Percent, Beats Forecasts, Wall Street Journal, June 29, 2000, p. B10.

______, Palms Founders to Get IPOAt Handspring, Wall Street Journal, June 15, 2000, p. B1.

Quittner, Joshua, PCs? Forget Em! Time, May 8, 2000, p. 105.

Sears, Steven M., Palm IPO Soars, Then Retreats a Bit, Pushing Traders to Unwind Options in Parent 3Com, Wall Street Journal, March 3, 2000, p. C26.

Stirpe, Amanda, Can Palm Hold On? Computer Reseller News, October 18, 1999, pp. 11718.

Thurm, Scott, Palm Inc. Gets Ready for New Hands, Wall Street Journal, February 28, 2000, p. B1.

______, 3Com Faces Bleaker Future Without Palm, Wall Street Journal, March 9, 2000, p. B6.

______, 3Com Names Yankowski to CEO Post at Soon-Independent Palm Computing, Wall Street Journal, December 3, 1999, p. B5.

Wildstrom, Stephen H., The PalmPilot Flies Higher, Business Week, Industrial/Technology Edition, March 23, 1998, p. 20.

Frederick C. Ingram

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