PalmSource Lays Off 18%

PalmSource, the subsidiary of Palm Inc. that develops the Palm OS, is laying off 18% of its employees. These were across the board layoffs, not concentrated in any one area of the company.

The company has released a statement that says, in part, "PalmSource is subject to the same conditions that all companies are experiencing now. We're in a weak and recovering economy with the added uncertainty of a possible war. At times like this it is necessary to evaluate your work force against business objectives and take steps that will allow us to position the company for success."

Palm is preparing to spin this subsidiary off as an independent company later this year and these layoffs could stem from PalmSource's need to cut costs. While Palm itself was profitable during its most recent financial quarter, the PalmSource portion of the company was not.

During the September to November 2002 quarter, PalmSource had revenues of $14.8 million but its expenses were such that it lost $7.7 million. In the previous quarter, it had revenues of $15.2 million and a pro forma loss of $4.1 million.

PalmSource gets most of its revenue from fees paid by licensees. On the surface at least, the company appears to be in a good spot. According to Gartner Dataquest, the Palm OS was on 6.7 million handhelds shipped worldwide last year, 55.2% of the total. However, the poor economy is hurting sales of handhelds, which were down 9.1%. At the same time, PalmSource is in the process of doing a major rewrite of the Palm OS. This leads to low revenues and high expenses.

However, PalmSource's statement pointed out that the company gained market share in Europe and in the US enterprise market at the end of last year. In addition, it has signed agreements with two important new licensees in China, which is one of the fastest growing economies in the world.

Investment Cash

In October, Sony, already a licensee of the Palm OS, announced it was investing $20 million in PalmSource, buying 6% of it. At that time, Palm Inc.'s CEO David Nagel said that his company was also in talks with several other possible investors and suggested that PalmSource wanted to have between $60 and $80 million in cash when it launched. It's possible that these other companies were wary of putting money into an unprofitable company and this round of layoffs was at least partially aimed at making PalmSource look like a better investment.

F---edCompany.com is reporting a rumor that Palm itself will lay off more than 30% of its employees over the next three weeks.

Related Links

• Palm Reports Profitable Quarter
• Sony Invests $20 Million in PalmSource