Palm to shareholders: We're more than hardware

Although devices account for 97 percent of its revenue, the company is stressing it sees a future in licensing its operating system and offering Internet content and services.

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Palm executives on Thursday updated stockholders on the company's plans to become more than just a maker of handheld computers.

Gartner Dataquest analyst Abha Garg says Palm is banking on licensing fees to boost its revenue, but the company shouldn't expect too much, too soon.

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Although devices accounted for 97 percent of Palm's revenue last quarter, the company is stressing that its future is in licensing its operating system and offering Internet content and services, as well as in selling products. The Santa Clara, Calif.-based company is backing the move with an estimated $100 million advertising campaign, which started Thursday, focusing on what people can do with their Palms.

"You do not want to be only a hardware company," chief executive Carl Yankowski told a modest number of people assembled at a San Francisco theater for the company's annual shareholder meeting. Profit margins inevitably come under pressure at hardware companies, he said, hearkening back to his days as president of Sony Electronics.

Yankowski reiterated the company's near-term plans, such as selling a $49 mobile Internet kit that will allow older Palm III and Palm V handhelds to connect to a cell phone to get the same wireless content that a Palm VII does. That kit will begin shipping this month, Yankowski said. The company will also revamp its Palm.net service to include the enhanced calendar features it acquired when it bought AnyDay.com earlier this year.

The company hopes such moves will allow more of its revenue to come from its Palm.net and other online services.

For next year, Palm is promising improvements to the operating system that will allow instant messaging as well as the always-on access to corporate email accounts now offered by the BlackBerry pager from rival Research in Motion. Those features will come packed in a new handheld that can deliver the wireless capabilities of a Palm VII and the smaller size of a Palm V.

Palm is also looking to continue its expansion into China, Yankowski said. Further down the line, Palm wants its products to be able to serve as an electronic driver's license, passport and wallet. Along those lines, Palm said Thursday it is working with Hewlett-Packard's VeriFone unit to develop handheld computer-based payment services.