Palm gains approval for split

Palm’s board has gained shareholder approval for a 1-for-20 stock split which it claims will simplify the process of separating the hardware business of the Solutions Group from the PalmSource software subsidary. Palm can initiate the split at a ratio of between 1-for-10 and 1-for-20 at any time between now and 1st April 2003.

“Today’s shareholder vote represents another step toward realising one of our key annual objectives to enhance shareholder value: the creation of two well-capitalised, profitable, high-growth companies,” said Eric Benhamou, Chairman and CEO of Palm. “The ability to effect a reverse stock split will help position Palm for the anticipated external separation of PalmSource, which will complete our restructuring and provide optimal clarity of purpose for each Palm business. The vote shows that our shareholders understand that the reverse split will help generate additional institutional investor interest in Palm.”

Palm intends to distribute shares in PalmSource to its existing investors when the two companies are split. It executed Palm’s split from 3Com in a similar fashion when the company was floated.


Creating a separate, publicly quoted entity for the PalmSource licensing business is a sensible move. It may even be profitable from day one as, unlike the competing Symbian venture, it already has an established volume of unit shipments. The Palm Solutions Group is selling about 2.5m to 3m devices per year and Sony is on track to exceed the 1m mark in 2003. Even without significant take-up of the various Palm OS smartphone licensees, it is not unrealistic for PalmSource to sell 5m licenses this year.

PalmSource is secretive about license costs, but assuming it is competitive with Symbian’s USD 5 – USD 10 range, that would represent revenues of about USD 30 – USD 40m. Support services and custom development could add another USD 10m per year. If Samsung, Kyocera and Handspring’s new Palm OS smartphones meet with success, they could easily add another 5m licenses annually.

It will be important, however, for PalmSource to clearly define its role from day one. There are particular question marks over the responsibility for promoting the Palm Economy. Will PalmSource take over administration of the Palm developer programmes? Will other vendors be invited to take equity stakes in the new company? Who will decide whether new licenses a granted to potential competitors?

Originally published by PMN Mobile Industry Intelligence, the subscription-based analysis and insight platform founded by Marek Pawlowski.

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