When handheld gadget-maker Palm said Wednesday it would buy rival Handspring, no one should have been more relieved than Handspring chairman Jeff Hawkins.
If Palm hadn't decided to buy it, Handspring likely would have gone out of business within about a year, industry analysts say. Not only would Hawkins, who owns more than a quarter of Handspring's stock, suffer financially, he wouldn't be able to get enough financial backing to make the next big gadget on his own.
"The thought was always that Jeff and (Handspring co-founder Donna Dubinsky) were the visionaries," Forrester Research analyst Ken Smiley said. "No one has thought of them in that fashion the last three years because Handspring has been struggling."
Hawkins is revered for inventing the original PalmPilot handheld in 1994. Palm gained a loyal following for its innovative design and functionality, but agreed to be bought by modem maker US Robotics so that it could tap the bigger company's resources. US Robotics, in turn, was bought by networking equipment maker 3Com in 1998. Hawkins and Dubinsky left shortly thereafter, partly because of chafing under 3Com's leadership.
After leaving Palm, the duo founded Handspring. As its first product, the company introduced a colorful, well-received personal digital assistant called the Visor. But Handspring had few other successes. Most recently, Handspring pinned its hopes on the Treo combination phone and PDA, but the device hasn't sold well.
With the acquisition, Hawkins finds himself returning to Palm as its chief technology officer -- and another chance to innovate.
"You might be curious about how I feel about this merger," Hawkins said in a press conference on Wednesday. "I have been at Handspring for almost five years now. Palm has changed a lot since I was there and everyone there is new. This is not a reunion for me."
He denied any bad blood between him and anyone at Palm.
"I will shake up the industry even beyond what we could have accomplished as an independent company," Hawkins said. "I am very excited of what we can accomplish with this merger."
Still, analysts wonder how Hawkins, a maverick engineer, will fare under a corporate culture he once disdained.
Whenever he evangelized the PalmPilot at tradeshows, he would always focus on its ease of use and clever placement of buttons -- not traditional engineer's fetishes like screen size or processor speed. He had even less patience for business matters.
"I'm not a corporate person," Hawkins once told Business Week.
Forrester's Smiley said all eyes will be on Hawkins now that he has returned to Palm. Comparing him to a sports coach who has won championships in the past, Smiley said Hawkins could hit a snag, as he did at Handspring, and prove to be nothing more than an inflated salary for Palm. On the other hand, Hawkins could rebound and make Palm the tech darling it once was.
With or without Hawkins, the combined company faces big challenges. In the most recent quarter, Palm had a loss of $172.3 million on revenue of $209 million. Handspring posted a loss of $90.4 million on sales of just $30.8 million. The new company would have to cut a lot of costs and introduce a blockbuster product to post a profit.
Meanwhile, Palm is losing out to rivals, particularly device makers that use Microsoft's Pocket PC technology. The company has a worldwide market share of 39 percent, down from 70 percent two years ago.
Still, investors are giving Palm the benefit of the doubt. Its shares jumped $2.29, or 19 percent, to $14.44. Handspring also rose 15 percent to $1.28.
Whether going back to Palm will prove to be a good career move for Hawkins will depend on whether he can make Palm's product strategy successful.
Said Smiley, "If not, he is going to have a legacy that he will have a hard time shaking."
