Sunday, June 08, 2003

Big fish gulp down the little fish Recent announcements show interesting patterns in mergers and acquisitions in the technology industry. PDAs Palm Inc., the maker of the Palm Pilot personal digital assistant (PDA), announced that it would buy out Handspring, which sells the Visor PDA and the "smart" mobile phone, the Treo. At the same time, it plans to spin off its software division, the creator of the OS used in both PDAs into separate company called PalmSource. Palm had revenues in 2002 of $1.0 billion, Handspring $.2 billion; both had slumping income, though Palm has done better with new products this year. The deal is for $169 million. While Palm is still the biggest seller of handheld computers, it is facing a contentious market, with serious competition from computer makers HP, Sony, and Dell. Handspring was battling with smartphone manufacturers like Nokia, Ericsson, and Motorola. These rivals use the Microsoft PocketPC operating system. Palm has around 36% of the PDA market, Handspring has about 6%, so the combined operation should have a stronger market share. The history behind this is quite strange. Some of Palm's founders left the company in 1998 to found Handspring, when Palm was bought out by 3Com. 3Com in turn spun it off as a separate company in 2000. Now Palm is coming back to swallow its own offspring, Handspring. (Meanwhile, network hardware manufacturer 3Com is slipping badly, dropping sales volume by 45% in 2002 and registering a half-billion dollar loss.) The PDA world is now very competitive, with the integration of telephony becoming a major deal. That's especially the case in Europe, where mobile phones are even more a way of life than they are in the US. Analysts see the merger as the only way both companies can stay alive, Palm needing good smartphone technology, and Handspring needing cash. ERP In other set of announcements, PeopleSoft, which is one of the primary sellers of enterprise software, announced it would acquire J. D. Edwards, one of the lesser players in the same field. PeopleSoft had gross income of $1.9 billion in 2002, while J. D. Edwards had revenue of $.9 billion. The offer is for about $1.7 billion. Enterprise software (sometime acronymed as ERP or Enterprise Resource Planning) involves data warehousing, supply chain management, and customer relationship management, and used by large companies with complex needs. Other players in this market are IBM, SAP, Siebel, and Oracle. Oracle then announced that it wanted to make a hostile bid for PeopleSoft. Oracle, the database company, which had revenues of $9.7 million in 2002, has offered a bid for PeopleSoft at around about $5.1 billion. Both Oracle and PeopleSoft showed declining sales and profits in 2002, while J. D. Edwards had modest growth. But Oracle CEO Larry Ellison ahs said that, if his takeover of PeopleSoft is successful, he might then back out of the J. D. Edwards deal. The resulting companies from any of these mergers will still face stiff competition in a slow growth industry, but there will be at least one less competitor to worry about. Again, each company seeks improvement by holding the right cards, and dropping those that are less desirable. 5:33:18 PM

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