Wednesday, May 25, 2005

Will RIM Go After PalmSource?

Mark Evans - Mark Evans


With PalmSource in disarray following the abrupt departure of CEO David Nagel, there is growing speculation the company will be acquired. An obvious candidate is PalmOne, a move that will reunite the software side of the Palm eco-system with the hardware. That said, PalmOne's intentions seem fuzzy after it took control of the Palm brand today by purchasing PalmSource's 55% stake in Palm Trademark Holding Co. for $30-million. It may suggest PalmOne's next move is acquiring PalmSource, or it may indicate PalmOne has what it values most - the Palm brand name - and it has little interest in the software business. Another intriguing rumor is that Research in Motion may be interested in acquiring PalmSource as it attempts to become an "wireless applications platform" rather than simply the company that makes cool Blackberry e-mail devices. As it now stands, RIM is a one-trick pony no matter how much management contends otherwise. This isn't a bad thing given the strong growth of the wireless e-mail market. RIM, however, is smart enough to realize there is plenty of mobile e-mail competition on the horizon, and it must diversify. PalmSource would give RIM access to the Palm OS and a large library of applications, which would address a major hole in RIM's product portfolio. The Deal suggests RIM could pay as much as $225 million for PalmSource - a 40% premium to its current market cap. While RIM has the cash to make a deal, the question is whether it wants to adopt a new OS. In many ways, the acquisition of PalmSource makes sense because it would be relatively inexpensive given RIM's large war chest, and it would give RIM credibility when it wants to talk about becoming an wireless application platform.

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