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New president does some Palm reading

It's been a busy week for Palm Computing and its president, Alan Kessler--but the real action is only just beginning.

SANTA CLARA, California--It's been a busy week for Palm Computing and its president, Alan Kessler.

On Monday, Palm announced its imminent spin-off from parent company 3Com and plans for an initial public offering of its stock. Tuesday saw the launch of high-profile Palm licensee Handspring, which unveiled its Visor device based on the Palm operating system. And a few days later, plans for the October 4 introduction of the Palm Vx were confirmed by sources close to the company.

The mood around Palm "was definitely better this week than last week," Kessler said in an interview with CNET at Palm Computing's corporate headquarters at the 3Com campus here in the epicenter of Silicon Valley.

Many analysts applauded the spin-off, but others cautioned that Palm still faces many potential land mines in the coming months, including new competition from Handspring and renewed efforts from manufacturers of Microsoft Windows CE handheld devices. Compaq, for example, will introduce a new device Monday that will compete with the Palm V.

Kessler, for his part, says he welcomes the challenges. "Let the games begin," he said.

Top priorities for the next 90 days include finding a CEO for the newly independent Palm Computing, completing the nationwide debut of the Web clipping service for the Palm VII wireless device, and continuing to target the corporate market, he said. Kessler has said he is one of the candidates for CEO.

Palm's president has identified the corporate market as one of the largest potential growth areas for Palm devices. To date, Palm's success at this enterprise level been achieved largely through the back door: companies forced to offer support for PalmPilots as more employees began using them. Now, the company is focusing less on individuals and more on corporate purchasers, Kessler said.

Still, he insists that Palm has not given up on individual customers.

"Hell no, we haven't conceded the consumer market," Kessler said, adding that Palm's development team is continually at work on new consumer devices, "trying to come up with the best solution," for that market.

That development includes work on color displays, a technical feat Palm has not yet been able to master. Although Microsoft's Windows CE operating system for handheld devices has enabled color displays this year, and Palm is rumored to be close to shipping its own versions too, Kessler says that color displays demand too much battery life, are too heavy, and add too much to the size of a product to be practical for the palm.

"The complete experience matters: weight, battery life, cost, and size. We need a spontaneous combustion," he said.

If hardware market share is any indication, lack of color displays are not really hurting Palm at all, Kessler added. Recent market share from research firm International Data Corporation indicates that Palm devices currently enjoy over 70 percent market share.

In fact, Kessler says he would willingly give up some hardware market share if it meant a healthy licensing business with competitive products using Palm software.

If its ambitions seem grand, some analysts believe they are justified. Some have compared Palm to Microsoft, as the handheld company attempts to position itself as the dominant operating system provider for all manner of portable and wireless devices, including cell phones, which is a much larger market than traditional digital assistants.

"It's Palm Computing as Microsoft," said Jill House, of IDC. "Think of what they're doing--they're a portal provider and a platform provider. That sounds a lot like Microsoft."

But Kessler is more conscious of the comparison to Apple Computer, whose disastrous licensing strategy is widely seen as a primary contributing factor to the company's financial doldrums in the '90s. Apple discontinued its licensing contracts with clone makers after concluding that cheaper machines running on the company's operating system were hurting Apple's revenues more than they were adding to the bottom line.

"There's also an analogy to Apple," he said. "We don't want to license ten years too late, and find out we waited too long."

With that in mind, Palm's president is supportive of Handspring and its upcoming Visor, even if his own market share declines as a result.

Handspring's Visor, with its new Springboard expansion slot which can turn the device into an MP3 player or two-way pager, adds new value to the Palm platform, unlike Apple's clone makers, which were merely selling cheaper versions of Apple computers, he said. "Cheaper is one thing, but different is more important," Kessler added.

Indeed, those in the industry say Palm seems to be learning from Apple's mistakes. "They're trying for what Apple should have done," House said.

In the meantime, Kessler is focused on the logistical details of divorcing Palm from 3Com, including the upcoming IPO. He admits that the employee stock options that come along with the public offering will help improve company morale and perhaps stem employee turnover.

In addition to Palm cofounders Donna Dubinsky and Jeff Hawkins, who founded Handspring, the start-up has reportedly siphoned off other key talent from Palm, sources say.

"The turnover rate is at the high-tech industry level," Kessler concedes, but "not a serious problem."