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Update: Time is right for Palm sale, analysts say

Company is profitable, but is being outgunned by larger competitors

By David Haskin
February 20, 2007 12:00 PM ET

Computerworld - Rumors circulated late last week on Wall Street that Palm Inc. was putting itself up for sale, which one industry analyst said would be a good idea.

"I think it would be a good thing if they were purchased," said Gartner Inc. analyst Ken Dulaney. "They're doing well now, but they need more capital to do the things they need to do."

The rumors late last week drove up the price of Palm stock. Palm spokeswoman Marlene Somsak said late Monday that the company does not comment on rumors and speculation. "There's new ones every day," she said.

Dulaney said he had no direct knowledge that, as several news stories indicated, Palm was preparing itself for sale. He did say, however, that Palm investors told another Gartner analyst of the preparations.

"The rumor that [Palm] is in play came from investors," Dulaney said. Whether the stories are true, Dulaney said that Palm, which is currently profitable, can't keep up its profitability over the long haul, particularly with its popular Treo line of smart phones starting to show its age.

"Today, the big guys can do new [phone] models every six months," Dulaney said. "Palm just can't do that. The Treo has been out there far too long. Its electronics have been upgraded, but it's just too thick."

Dulaney was referring to the trend toward ever-thinner and smaller smart phones, such as the Motorola Q, Samsung's BlackJack and Research In Motion's Pearl. Even RIM's long-popular BlackBerry line aimed at business users received an overhaul recently with release of the thinner, smaller BlackBerry 8800.

Another analyst, Miro Kazakoff, said the market for smart phones is changing rapidly and the Treo has not been keeping up with its competitors. Kazakoff is director of the wireless practice for Compete Inc., a consulting company that monitors Web activity at specific sites to determine user behavior.

In particular, Kazakoff said that phone vendors have started offering lower-cost smart phones aimed at consumers. And while Palm responded to this trend with its low-cost Treo 680, that device isn't doing as well as higher-visibility devices like the Samsung BlackJack and the Motorola Q.

"What we've seen -- and it's not a great sign for Palm -- is that 50 percent of those looking at the BlackBerry Pearl are also looking at the BlackJack, but less than 15 percent of that same group are considering the Treo 680," Kazakoff said. "A lot of these shoppers haven't considered smart phones before and the Treo isn't as much on their radar as the others."

One issue might be that the Treo is bigger and thicker than its newer competitors, Kazakoff said. But another problem relates to the size of Palm as a company.

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