Dec. 9, 2006

Palm said Wednesday it will spend $44 million for Japan's Access Systems' perpetual license of the operating system used in Treo smartphones and PDAs.

Palm's new agreement will ensure that its current and future devices remain operational with Palm's Garnet operating system.

Palm, which also licenses Microsoft's Windows Mobile 5.0 Pocket PC Edition operating system, said the one-time charge avoids yearly royalties to Access worth tens of millions of dollars.

The new arrangement "gives Palm increased ability to innovate on the Palm OS Garnet base, and to effectively differentiate Palm products long into the future," Mark Bercow, Palm's senior vice president of business development, said in a statement.

According to the agreement, mobile technology firm Access will expand the licensing terms with Palm, covering all current and future Palm products, "regardless of the underlying operating agreement."

The new licensing will let Palm developers modify the Palm OS to suit the needs of the Treo roadmap rather than Access' future Linux-based ALP operating system, spokeswoman Marlene Somsak told internetnews.com.

Palm will retain rights to any modifications it makes to the Palm OS. Following a 2003 decision to split Palm into two separate companies, one devoted to software and one to hardware, Access Systems in 2005 paid $324 million to acquire PalmSource, the unit that developed the Palm OS. The same year, PalmOne, the second Palm spin-off company, renamed itself Palm Inc.

"This is a survival thing," according to Gartner analyst Ken Dulaney. While the Windows Mobile-based Treo wouldn't be affected, Palm OS would probably die without a long-term license, Dulaney said.

With or without a long-term license, Palm OS will likely be history within five years, according to Dulaney.

Palm said it remains committed to enhancing the Palm OS, a nod to possible concern by developers over the company's decision to also support Windows Mobile 5.0.

"Palm will probably go somewhere else," Dulaney said. The likely destination is a Palm OS based on Linux, similar to the operating system Access is selling to phone companies, the analyst suggested.

In related news, Palm said it will announce second-quarter financial results on Dec. 19. Last month, Palm projected second-quarter results would be between $390 million and $395 million.

Palm CEO Ed Colligan blamed the lower-than-expected numbers on a delay in the U.S. certification of its Treo 750.

A Merrill Lynch analyst at the time said the earnings shortfall was Palm's "third consecutive misstep" behind increased competition from Motorola's Q and the delayed European launch of the Treo 750v.

Source: Internet News