Palm buys Extended to fuel corporate push

Palm has bought corporate mobile data company Extended Systems in a stock-swap worth $264 million. Shareholders and regulators permitting, Palm will offer $22 of its own stock for each Extended share.

Extended produces software and systems that hook mobile workers into corporate networks, allowing them to use network resources such as printers, and synchronise their contact and agenda data.

The company also develops Bluetooth enabling software to let mobile devices communicate with corporate systems while their users are roaming company sites.

Such functionality is essential to Palm's push into the corporate market, a move designed to pitch the company's products as a key enterprise tool and not just toys for senior executives.

Palm is only interested in Extended's code - the hardware side of the business is to be abandoned at a cost of $15 million, Palm CFO Judy Bruner said yesterday. It will also lose Palm 54 per cent - $13.8 million - of Extended's revenue. Extended's hardware product line includes print servers and virtual private network devices.

The most interesting part of the deal is Extended's support for multiple palmtop platforms - which Palm is apparently eager to maintain. Since corporates are notoriously unhappy at changing what hardware they have chosen to support, Palm has to be willing to continue to support PocketPC, EPOC et al.

However, there's something in the tone of Palm CEO Carl Yankowski's public comments on the deal and in an interview with CNET that suggests Palm is actually quite keen on the idea. That will fuel speculation that the company intends to spin off its hardware business. That's increasingly seen as a wise move, to ensure the company is correctly valued as a software business and to prevent licensees fearing that Palm's ownership of OS and hardware may lead to what they would consider an unfair competitive advantage.

The incorporation of Extended's business into Palm will prompt a reorganisation of the company's structure. Extended will become Palm's Enterprise Solutions Group under Extended CEO Steve Simpson. An Individual Solutions Group will take over the hardware, content and wireless access products. Finally, Palm COO Alan Kessler will run the PalmOS development and licensing operation. ®