Is Linux Palm's savior?

Despite ambitious plans to embed the OS in devices, PalmSource is struggling with market forces and internal upheaval.

The deliberately simple nature of the Palm operating system was so inspiring to Rick Broida that in 1997 he started a magazine, Tap, dedicated to devices using the handheld operating system.

Long a fan of the handhelds and operating system, the Commerce Township, Mich., freelance writer has watched both decline over the years following inventory problems and a cooling of the once-hot handheld market. Hardware maker PalmOne remains the market leader, but the OS company, PalmSource, is, as one analyst put it, "a company in transition with a risky strategy."

Broida is more plainspoken.


What's new:
PalmSource is struggling to maintain its position in the handheld OS market amid a highly competitive landscape and the turmoil of a CEO resignation.

Bottom line:
To find its way back to the top of the heap, PalmSource will have to survive lean times in coming months--and hope its bet on Linux pays off.

More stories on PalmSource

"They were the leader, now they're the follower," he said. "There's no question Windows Mobile has passed it by in certain areas and the Palm OS has not kept up. It just seems like they're sitting on their hands."

After ambitious plans to embed the operating system in new classes of devices such as smart phones and advanced phones--which were expected to far surpass the handheld industry in terms of shipments and growth--PalmSource is struggling against similar suppliers, a shrinking market and fewer manufacturers interested in its operating systems than expected.

This is not what executives had in mind when they first broke off from handheld maker PalmOne in 2003. When PalmOne and PalmSource were part of Palm, licensees were concerned that the OS company would favor the hardware company when it came to making new software features available. The split was expected to allow PalmSource to seek more licensees without having them worry about competing directly with PalmOne.

But instead, the number of PalmSource licensees shrank. Sony left the handheld market, and PalmOne acquired Handspring, which was No. 2 in market share.

Wrestling with Redmond
The tough times have continued for PalmSource. Its chief executive, David Nagel, abruptly resigned Sunday without giving a reason, and for the first time devices shipped using Microsoft's handheld operating system surpassed the Palm OS for the year in 2004, according to research firm IDC.

Microsoft is also expected to increase its lead in the handheld market--this year 49 percent of handhelds shipped worldwide will use Windows Mobile, and by 2009 that number is expected to jump to 56 percent. PalmSource's share will shrink from 44 percent in 2005 to 38 percent by 2009.

More troubling is the fact that traditional handhelds are still the major source of PalmSource's revenues. That's not the way it was supposed to be.

The company has developed Cobalt, a new OS for smart phones, but customers have yet to release a device using it.

"Cobalt was supposed to bring them significant growth through new licensees and new form factors," said Kevin Burden, a research analyst with IDC. "Oh my god, yeah, it's been slow in coming--that's a nice way of putting it."

But PalmSource says devices using Cobalt are on the way.

Interim PalmSource CEO Patrick McVeigh said the "pipeline" for Cobalt is building nicely and declined to further elaborate. He did note, however, that it typically takes smart phone makers roughly 18 months to develop new products.

One developer with an Italian company that makes software for PDAs and smart phones attributed PalmSource's licensing woes with Cobalt to the timing of the company's product announcements.

Shortly after PalmSource was spun out, the company announced its new operating system, Cobalt 6.0. In announcing the new OS, the company also highlighted its product road map, which included a feature-laden version, Cobalt 6.1.

"Showing the road map was an error, because the licensees wanted to wait for 6.1," the Italian developer said. "The first version had no phone features, no VGA and no Bluetooth. It only had the user interface, so it was too expensive for the licensees to develop."

So as a number of licensees patiently sat on the sidelines waiting

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