Struggling Palm gets $100 million cash infusion

Palm Inc. today received a cash infusion from a venture capital firm that could help the smart phone maker recover from its struggles.

Under terms of the agreement between the two companies, Elevation Partners will provide $100 million and increase its investment in Palm.

The investment comes at a time when Palm is struggling to remain a player in the mobile phone market, where it has been eclipsed by rivals Research In Motion Ltd. and Apple Inc. Palm's product offerings include the Centro and Treo smart phones.

"The additional capital from Elevation Partners will enable us to put added momentum behind the new product introductions scheduled for 2009 and will provide us with enhanced stability in unsettled economic times," Ed Colligan, Palm's CEO, said in a statement.

In a statement issued last week announcing the company's second-quarter financial results, Colligan acknowledged that the company was working through an "undeniably difficult period."

Palm reported revenue of $191.6 million for its second fiscal quarter, which ended Nov. 30. In the same quarter a year earlier, it reported revenue of $349.6 million. In the quarter, the company sold 599,000 smart phones -- 13% fewer than it sold a year earlier; revenue from smart phones dropped 39% from last year's level.

The company may continue to struggle through next year, since overall sales in the mobile phone market are expected to slow down. IDC last week said mobile phone shipments would decline by more than 2% next year compared to 2008. That's the largest decline since 2001, IDC said, noting that the global economic crisis was a major factor in the drop.

Palm will reportedly introduce new smart phones next year, as well as a new Linux-based mobile operating system code-named Nova.

Palm's agreement with Elevation Partners calls for Elevation to pay $3.25 per share for Palm stock, a 31% premium on the closing price of the company's shares last Friday. The deal is expected to close by the end of January.

Copyright © 2008 IDG Communications, Inc.

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