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Yankowski out as Palm CEO

Carl Yankowski resigns, handing the reins of the troubled handheld maker to Chairman Eric Benhamou.

Palm Chief Executive Carl Yankowski resigned Thursday, following a brutal year in which the handheld computing leader went from being profitable and flush with cash to being plagued by a glut of products and significant losses.

Company Chairman Eric Benhamou will serve as CEO until a permanent replacement is found. A search is already under way, Palm said.

"With Palm's transition into two individual businesses almost complete, my role has changed, and it no longer matches my aspirations," Yankowski said in a statement.

Yankowski did not announce his future plans.

Palm shares were up slightly after the announcement to $2.30 in after-hours trading on the Island ECN, after closing regular trading down 3 cents, or 1.3 percent, to $2.27, well off a 52-week high of $62.75.

Palm began the year still struggling to keep up with demand. However, delays and other problems with the launch of the m500 series, combined with weakening demand, led large quantities of Palm's products to pile up on the shelves of retailers and distributors. That resulted in a brutal price war with Handspring and others, which led the company to pile up losses and burn through much of its cash reserves.

The company has stabilized some in recent months but has pushed out the time frame of when it might return to profitability, after earlier saying it might turn a narrow profit for the current quarter.

Gartner analyst Todd Kort says Carl Yankowski's resignation as Palm CEO a mere 23 months after he took the job mainly results from a series of missteps by the company.

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Benhamou said in an interview that Palm's earlier problems are behind it, though new challenges loom.

"Consumer confidence has taken such a blow after the terrorist attacks," he said. "Obviously, we have to redouble our efforts."

Despite its problems earlier in the year, Palm said Thursday that it is on track to meet its financial estimates for the quarter.

"While the economic slowdown persists, and consumer confidence has fallen following the Sept. 11 terrorist attacks, we are encouraged that sell-through has rebounded to levels above that of the summer months," Benhamou said in the statement.

Palm said Benhamou will chair an executive council that will help lead the company until a new CEO is named. The council is made up of David Nagel, CEO of Palm's soon-to-be spun-off operating system subsidiary; Palm Chief Operating Officer Todd Bradley; and CFO Judy Bruner.

Benhamou said in an interview that Palm is looking to start the process of splitting Palm into separate, publicly traded companies. As a result, Benhamou said, Palm now needs a different type of CEO, one with the innovation and operational excellence to run a device business. He said the board will look both within Palm and outside the company for that leader.

The move is positive for the company, said William Crawford, an analyst at U.S. Bancorp Piper Jaffray. "The buck stops with the CEO, and Palm management has clearly not executed," Crawford said.

Privately, analysts had been calling for new leadership for months.

"In terms of execution, a number of his moves were questionable," said Needham analyst Andrew Scott. "The vision under Carl Yankowski was always a bit murky."

Yankowski's departure comes after a dramatic decline in Palm's stock.

"Investors voted with their wallets," Scott said. "Given the drastic change in share price, it appears that the board felt Palm needed to be changed from the top down."

Yankowski, a former Reebok executive and Sony Electronics president, was named CEO of Palm in December 1999, as the unit was being prepared to be spun off from 3Com.

Yankowski will receive a severance package from Palm, although the company did not offer specifics. Under Yankowski's employment contract, he is entitled to receive a lump-sum severance payment equal to two times his salary, full vesting of any nonperformance-based restricted stock, and two years of vesting for any nonperformance-based options and paid health benefits, according to the company's September proxy. In fiscal 2001, Yankowski received $666,667 in salary.

News.com's Dawn Kawamoto contributed to this report.