NEW YORK (Reuters) -- Having dominated the consumer market with its pocket-sized hardware, Palm Inc. (PALM.O) is betting on software to help it grab the lucrative corporate market for handheld personal devices.
With some 11 million units sold, Santa Clara, Calif.-based Palm claims over 60 percent of the $25 billion market for personal digital assistants (PDA), the information management gadgets desired by teenagers and chief executives alike.
Still, market share figures are ``irrelevant,'' particularly at this early stage, Palm Chief Executive Carl Yankowski said recently. Instead, software and services will rule a future when, Palm hopes, handheld devices are as ubiquitous as personal computers and mobile phones.
``There is great consensus among the senior management team that the long-term win is really a win for the OS (operating system),'' Palm Vice President Jerry Jalaba told Reuters in an interview. ``As long as Palm OS overall licensees continue to grow, we are happy.''
In a perfect Palm world, there will be a pocket-sized computer in every hand, each running some version of Palm software, and companies will buy them in bulk.
So far, software licensing represents a fraction of Palm's business, with substantially all revenue to date derived from sales of devices and accessories. In a recent government filing, Palm said licensing ``will represent a relatively small portion of our total revenues in fiscal 2001.''
The Palm OS, which also runs on rival handhelds made by companies such as Handspring Inc. (HAND.O) and Sony Corp. (6758.T), claims a 90 percent market share. Palm's chief software rival is Microsoft Corp.(MSFT.O), whose Pocket PC system powers devices made by Casio and Hewlett-Packard Co.(HWP.N).
Microsoft, whose Windows operating system runs most office PCs, has already made inroads in the business markets. But Jalaba argues that Palm's advantage is its flexibility in creating systems that suit individual clients needs.
``What we want to do is enable the whole economy for the Palm OS,'' Jalaba said. ``Some of those devices (sold) end up being Palm devices; all of them end up being Palm OS devices.''
Transition to the enterprise market
Key to this switch is Palm's expansion into enterprise sales, where corporations order thousands of devices, arm them with in-house software powered by Palm and give them to employees as a tool, much as they would a training manual.
Market research firm IDC forecasts that the percentage of handheld computers shipped to companies in 2004 will rise to about 50 from 30 in 2001. The share of shipments to individuals will drop to 50 percent from 70 percent, but only because of a rapid rise in corporate buying.
Indeed, IDC sees the total number of shipped products growing to 33.6 million in 2004, more than double the 2001 estimate of 14.9 million.
``Enterprises will get into gear with their mobile device strategies and go out and buy them, rather than letting their users buy the devices,'' said IDC program manager Kevin Burden.
Toward that end, Palm has actively beefed up its software alliances. On March 6, it agreed to buy, for about $264 million, Extended Systems Inc. (XTND.O), whose products help bind handheld computers in business environments so companies can link in-house software through a wireless network.
And in January, Palm and drugstore operator CVS Corp. were among a group that invested $18 million in ePhysician, a company seeking to make wireless handheld devices common in medical offices as a way of tracking diagnoses and treatments.
Also, Palm's investment group, Palm Ventures, recently invested in software company Kenamea, whose technology promise to accelerate the availability of certain applications and make it easier to extend them to Palm OS based handheld devices.
Palm device sales may become 'side effect'
For Palm, the corporate focus represents a critical shift from the current model, where buzz about the handheld machines has sparked one-at-a-time sales of Palm-branded devices.
``The real focus is extending Palm's reach through applications,'' said Jalaba, who is charged with planting Palm's seed in the business marketplace. ``The side effect is that you end up selling a lot more devices, and a lot more Palm OS licensees sell more Palm-based devices.''
Jalaba's staff works with companies to build software that addresses a specific need, tweaking the Palm system to perform certain tasks such as updates on the actions of team members.
For example, Sears recently agreed to put in place nearly 15,000 of Symbol Technologies Inc.'s (SBL.N) handheld devices, running the Palm OS, to perform in-store applications such as inventory, price change, merchandise pickup, and replenishment.
Palm's shift is critical, because they can feel the heat emanating from powerful competitors. From heavyweights such as Microsoft and Hewlett-Packard to upstarts like Symbian Ltd. and Research In Motion Ltd. (RIMM.O), companies are shooting bolster offerings of handheld computers and related services.
What's more, concerned investors are watching Palm closely. One year after the company's initial public offering, its share price, like many leading technology issues, is a mere shadow of its Internet-boom greatness, trading it about $21.
That compares to an all-time high, scored on its first day of trade, of $165. The stock has shed some 35 percent of its value since the start of 2001.
