Palm Be Apple – Could a triple merger be in the works? Neil McAllister, Special to SF Gate Thursday, January 3, 2002 January is here once again, and another San Francisco MacWorld Expo can’t be far behind. As usual, the question on the collective minds of the Apple faithful is, What will Steve Jobs pull out of his hat this time? “We’re working hard to make this the best MacWorld ever,” Apple’s iCEO insists, though he’s certainly got his work cut out for him this year. Like those of the rest of the industry, Apple’s fortunes haven’t been so hot lately. While the Cupertino-based PC maker did manage to bring in $5.4 billion in revenue, that’s down 34 percent from last year’s figures. And where Apple boasted a $784 million profit in 2000, this year it lost $25 million. As is customary whenever a new Apple announcement approaches, speculation abounds. While I’m in no better position than any of the other fortune-tellers to tell you whether this year’s MacWorld will bring flat-screen iMacs, improved system software or an expanded line of iPods, I can tell you what I’d like to see. I think it’s high time Apple bought Palm Computing. Sound crazy? Maybe not, if we read the signs. I certainly am not the first to suggest the idea. Hand Holdings We know the interest is there. Lest we forget, Jobs did try to buy Palm’s business once, in 1998 — but 3Com, the handheld maker’s then-parent, turned him away. By February 2000, 3Com had spun Palm off into its own company, and an IPO followed shortly after and the new venture’s stock peaked at $160 a share. Palm was flying high, and a takeover was the last thing on anyone’s mind. But as with any number of tech-industry Icarus stories, what goes up must come down. Today some analysts are skeptical that Palm, which has been battered in the marketplace, will be able to return to its former profitability. With its shares now trading for a paltry $2.75 each, a successful takeover bid could snap the company up for peanuts. Might Apple be the suitor to do it? Though nothing ever came of its 1998 attempt, the pairing still seems likely enough that it’s a rare analyst who’s willing to bury the rumors completely. In fact, at this stage it might be a pretty good idea. Palm isn’t a bad company. It could just use a helping hand. Analysts complain that it’s seemed directionless lately, lacking a clear strategy to penetrate either the mobile-connectivity or enterprise markets. Palm’s product line is poorly diversified, which has led to disappointing sales and a glut of unsold inventory. And though the Palm OS sports arguably the most elegant interface of any handheld, its system internals have evolved little since the earliest models. Echoes of the Past Sound familiar? It should. It’s a portrait not unlike the Apple of the 1990s, under the reins of John Sculley. At that time, Apple’s Power Mac and Performa desktop-product lines were a tangle of confusing and redundant models, and its management team waffled on promises of modernized system software. Meanwhile, the Mac OS stagnated, caught in a time warp that was rapidly leaving it in Windows 95’s dust. The similarities between Palm and Apple don’t end there. The two companies also share an unusual sort of schizophrenia, torn between their software and hardware manufacturing halves. Just as Mac OS developers of the 1980s chafed against Apple’s reliance on its Macintosh hardware business, Palm’s operating-systems group has sometimes had a hard time acting in its own best interests. “The software guys have been stingy in licensing the OS,” IDC analyst Kevin Burden told CNet News.com, “because the companies signing up would be potential competitors to the hardware business, which brings in the most revenue for [Palm].” The licensing problem is one with which Steve Jobs is all too familiar. Jobs ended the market for Mac clones once and for all when he unceremoniously aborted Apple’s own licensing program in 1997. But Palm has a less dramatic turnaround strategy in mind. Plans to separate the company’s hardware and OS software divisions are already under way — though the company stops short of suggesting a full spin-off for either of its business units. Interim CEO? Sony, one Palm OS licensee, sees the new plan as a positive change. “If anything, this creates more of a formal division between the OS group and the hardware group,” Sony spokesperson David Yang said to CNnet News in August. Less pleased, however, was Palm CEO Charles Yankowski, who resigned from his position in November, saying in a statement, “With Palm’s transition into two business units, my role has changed, and it no longer matches my aspirations.” Almost immediately, Yankowski’s departure gave rise to a new wave of acquisition rumors. As recently as last June, Wall Street had been abuzz over the possibility of an Apple-Palm deal, but Yankowski denied the speculation. “No one has approached me,” he insisted, “and I have no comment consequently.” But now, with a vacancy in the top spot at Palm, is it possible a third CEO title could be forthcoming for Steve Jobs, who already helms both Apple and Pixar? Such a scenario wouldn’t seem strange to Palm’s executive team, many of whom are Apple alumni themselves. Apple’s legacy extends even to the internals of the Palm OS, which incorporates many Mac-like concepts. In fact, David Nagel, president and CEO of Palm’s new OS subsidiary, once headed up Apple’s ill fated Copland project, one of the company’s abortive attempts to modernize the Mac OS. What Might Be Nagel’s group moved even one step closer to its Apple roots in August, when it announced that it would acquire the intellectual property of a company called Be. Founded in the early 1990s by Jean-Louis Gasse, the flamboyant former president of Apple’s products division, Be was born of Gasse’s seeming desire to re-create Apple in his own image: an “Apple done right.” Back then, while Apple boasted of the merits of its PowerPC processors, its unimaginative designs lagged behind their Intel-powered rivals. Gasse’s BeBox, on the other hand, packed not one, but two, PowerPC chips into each system — a move Apple would emulate years later. And, in contrast to Apple’s proprietary designs, Be’s hardware bristled with standard interface ports, as well as a 37-pin “GeekPort” aimed at custom hardware builders. But Be’s real achievement was the BeOS, a modern operating system that packed a microkernel architecture, preemptive multitasking and memory protection — features Apple wouldn’t gain until the release of Mac OS X this year. Apple even flirted with the idea of buying Be before eventually settling on technologies from Steve Jobs’ NeXT Computer for the core of its new OS. In the end, the BeOS desktop never really found a niche, nor did BeIA, Gasse’s retooled version aimed at digital appliances. That is, not until its acquisition by Palm. Now Gasse’s input will inform Nagel’s vision of a reinvigorated Palm OS, centering around BeIA’s advanced Internet, communications and multimedia subsystems. Palm Reading With so much ex-Apple talent concentrated in one place, could Nagel’s Palm OS division be ripe for an acquisition by Apple? A deal with Apple would lend Palm’s core hardware division a much-needed cash infusion. At the same time, it would turn management of the Palm OS over to a company that’s home to one of the best consumer-oriented operating systems in the world. Let’s face it; the iPod — though nifty — isn’t much more than a high-tech Walkman. We’ve seen iMacs as well, LCD screens or no. If Jobs wants to really shake up the industry, it’s time he announced a new, Apple-branded PDA technology. Handhelds have been the real missing link in Apple’s much-touted “digital hub” strategy ever since Jobs axed the Newton line in 1998. More important, the acquisition of Palm would give Apple access to some of its top former talent — people like David Nagel and Jean-Louis Gasse, who played key roles at some of the pivotal moments in Apple’s history. If Apple is going to hold its own through what looks like another trying year, it’ll need to rely on as much of its trademark ingenuity as it can muster. After all, isn’t that what it’s all about?