Palm for sale after rivals in smartphones move ahead

Pioneering firm eclipsed by Apple and BlackBerry
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The Independent Online

Squeezed between the consumerist cool of Apple's iPhone and the corporate capabilities of Research in Motion's Blackberry, the ailing mobile device maker Palm has called in bankers and put itself up for sale.

Once a pioneer in the emerging market for handheld devices, Palm's most recent reinvention as a manufacturer of smartphones has failed to pay off, and sales of the Palm Pre and the Pixi have fallen far short of expectations. A string of profit warnings has left the company unloved by investors and facing the slow dwindling of its cash pile.

Yesterday, however, Palm shares jumped by 17 per cent after news that the company had called in Goldman Sachs and Qatalyst, the boutique advisory business set up by the technology analyst Frank Quattrone, to solicit bids for the company. The bankers will also examine other options, including raising another round of funds and licensing some of Palm's technology.

Speculators have piled into Palm shares in the past few weeks in the hope of a $1bn bidding war for the company or its assets. The global smartphone market is growing, and the distinction between laptops and mobile phones is becoming increasingly blurred, meaning that numerous companies from several industries are considering their future strategies.

The phone manufacturers HTC and Nokia, and Lenovo, the computer maker listed in Hong Kong, are among the companies likely to examine a bid for Palm, analysts said. Dell, the US PC manufacturer, is also often mentioned in connection with the company, as is Microsoft, whose operating system for smartphones has still not gained the traction the software company hoped.

Palm's webOS operating system has won technical praise for its speed and ease of use, and the Pre was dubbed by some reviewers on its launch last year as a potential "iPhone killer". Neither it, nor the successor phone, the Pixi, in fact captured the public's imagination. According to its most recent quarterly results, Palm shipped 960,000 devices in the three months ended February, but only 408,000 were actually sold to customers. The company said it had a cash pile of just under $600m, but some analysts said it could see outflows of $150m in the next three months and no sign of profitability on the horizon.

Palm shares jumped almost one-third last week as rumours of potential bidders began circulating, and news of the appointment of Goldman Sachs had sent them up a further $0.96 to $6.12 by lunchtime trading on the Nasdaq stock exchange yesterday. That took the company's valuation back over $1bn for the first time since before its last profit warning.

A sale at the current price would be a dismal end to an illustrious history that saw the company valued at $53bn on its frenzied first day of trading on Nasdaq in 2000. That same day, Apple was worth just $20bn. But a successful sale of the company would limit some of the losses for Elevation Partners, the private equity firm in which the U2 frontman Bono is a partner, after it spent some $460m accumulating a 30 per cent stake.

Founded by the engineer Jeffrey Hawkins in 1992, Palm was a pioneer of the personal digital assistant (PDA), handheld devices where users could enter notes and calendar items using a pen on a touch screen. Newer devices such as the Blackberry left Palm trailing in the market for business users, however, and Apple's entry into the consumer market left Palm struggling to find a niche.

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