April 22, 2010 11:29 pm

Palm pledges to survive as an independent

The head of Palm has insisted that the troubled smart­phone maker can survive as an independent company in spite of disappointing sales of its flagship handsets.

Jon Rubinstein, chief executive, said that Palm would look at letting other mobile manufacturers use its critically acclaimed smartphone operating system in a move that could boost the company’s revenue.

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But he also acknowledged Palm would consider takeover offers after the lossmaking company appointed banking advisers to examine all options including a sale.

Palm’s revenue warning in February underlined how it is struggling to gain the scale necessary to survive in the highly competitive smartphone market, which is led by Apple’s iPhone.

Mr Rubinstein, however, said he was “bullish” about Palm’s long-term prospects. “I believe Palm can survive as an independent company,” he told the Financial Times. “We have a plan that gets us to profitability.”

He highlighted how Palm had a gross cash position of $592m at the end of its third quarter.

Analysts at JPMorgan estimate that the company will burn through $534m of cash before reaching break-even in May 2012.

Palm is betting its turnround on a new generation of smartphones, launched last year, that use its webOS operating system.

But sales of Palm’s Pre and Pixi smartphones have fallen short of the company’s expectations, and JPMorgan analysts say much will rest on its next line of handsets.

One notable advantage that Palm’s handsets have over rivals is the ability to “multi-task” by running several software applications, such as e-mail, at the same time.

However, Apple’s next version of the iPhone, expected in June, will have a multi-tasking capability.

Mr Rubinstein said Palm was working “fast and furious on new handsets”. “We do have a strong pipeline of products in the future,” he added.

Analysts at RBC Capital Markets say Palm, which has a market capitalisation of $820m, could attract bids of $2bn-$3bn, given the quality of its webOS operating system.

“If someone comes to the board with a reasonable offer of course it’s something we have to consider,” said Mr Rubinstein, who declined to confirm that Palm had hired banking advisers.

One alternative to a takeover could be for Palm to licence other mobile makers use its webOS operating system in their smartphones, and Mr Rubinstein said: “If there’s an appropriate strategic relationship or business deal that makes sense to us then of course we would licence webOS because obviously the more scale we get the more the benefit there is to us.”

Palm has blamed the disappointing sales of its webOS handsets partly on poorly trained staff at shops owned by mobile operators.

Palm is selling the smartphones through Sprint and Verizon Wireless in the US and Telefónica in Europe, but inadequate training has meant some store staff were unable to fully explain the handsets’ capabilities to customers.

Mr Rubinstein conceded that Palm’s limited resources were restricting its ability to expand rapidly the number of countries in which it sells the webOS smartphones.

Palm is gradually increasing the number of mobile operators that sell the smartphones in Europe, to include France’s SFR and Vodafone’s German business, but it has yet to announce a partner in Asia.

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