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Interesting Tidbits in Palm's Annual Statement

Tue Aug 1, 2006 - 12:03 PM EDT - By Dieter Bohn

Add another chapter to the PalmSource Saga

I've mentioned before that the history of PalmSource "is a complex and beautiful tapestry of corporate splits, mergers, and operating systems." This past week we can add another chapter: more brouhaha about the future of the Palm and their use of the PalmOS.

It all began Friday when Palm filed their annual report (PDF-frame link). In it, they spoke to their investors about the financial stability of the company and its future prospects. On page 22, they say the following:

PalmSource did not timely meet certain of the milestones under the co-development agreement, relieving us of our obligation to make minimum royalty payments under the license agreement after calendar year 2006. We are presently in negotiations with PalmSource to expand our development and distribution rights to the current version of the Palm OS. If we are unable to successfully conclude these negotiations, it may adversely affect our ability to develop and distribute new products based on a next- generation version of the Palm OS. Regardless, we will continue to release new products based on the current version of the Palm OS.

This little disclaimer comes section "1A. Risk Factors.," so it very much needs to be taken with a big grain of salt, maybe a shaker-full. The point of that section, as I understand it, is to as honestly lay out what could possibly go wrong in the future. Seems to me that if you cherry-pick quotes from any corporation's "Risk Factors" section it will look like pretty bad.

The thing that many sites seem to have picked up on, though, is the Palm's comment that "[we have been relieved] of our obligation to make minimum royalty payments under the license agreement after calendar year 2006." Many sites took to mean that Palm was trying to give itself a way to back out of using the PalmOS as soon as this December.

Palm's Jim Chirstensen went on the record with C|Net to try to calm everybody down,

"(A new deadline) hasn't been established, but we're revising the plan to expand our development and distribution rights and working to resolve development issues," Jim Christensen, director of Product Communications for Palm, told CNET "We're committed to working with them in the future."

So what does all this mean? Search me. My hunch, though, is Palm Inc. is likely just as bothered by the lack of progress in the PalmOS as I am (probably more so) and that this is either a way to pressure PalmSource into speeding up the next-gen PalmOS or it's some other mysterious financial maneuver that I couldn't possibly fathom.

Since I cherry-picked a doom-and-gloom quote above, I'll cherry pick another one that may make us feel a little better:

We expect to experience revenue and operating income growth as a result of our smartphone product line. The smartphone market is in its infancy and people are just beginning to understand the personal and professional benefits of being able to access email or browse the web on a smartphone. We expect this market to expand and we expect to capitalize on this expansion.

I agree that the smartphone market is just getting started - even though it seems like I've been using Treos forever I think they're just now really starting to come into their own. Competition is also getting pretty fierce, though. At least it's nice to see that Palm is bullish about their own prospects. However, as I've said before: I Am Not A Financial Expert; Actually, I Am Bad With Money.

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