- SWOT analysis
Strengths
- Good brand identity, strong reputation
- Integration of hardware and software for ease of use
- A company with the focused products
Weaknesses
- Inability to differentiate from competitors
- Low expertise in other areas and functionality
Opportunities
- The handheld industry is still changing and currently no company is standing on stable ground
- the customer does not know what they want, manufacturers have large role in experimenting and determining what the products are, hence shaping the industry
- Highly segmented customer base with very different needs, creates opportunity for product differentiation, such as for financial services, government, health care, and manufacturing.
Threats
- high threats from other Palm devices, Pocket PCs (Microsoft)
- increasing number of competitors at multiple levels
- incoming competitors are big-pocket, large corporations (Nokia, Sony, Microsoft) with a much longer history in the electronics business
- The current strategy is Licensing strategy. Palm licensed its platform fir handheld devices to companies including Acer, HandEra, Handspring, Nokia, Sony and Symbol. Handspring and Symbol has recently extended their Palm OS licenses until 2009 and 2005, respectively. Palm marketed 3 primary internet and wireless services and applications that addressed these opportunities: Palm.net, My Palm portal and Palm.com. Although these licensees competed with palm for customers for handheld devices and reduced market share, the PDAs relied on the Palm platform for operations, further strengthening the consumer’s reliance on Palm.
Palm also sold products through 3ed parties that had significant market presence or access to new products that could be more efficiently developed and managed than by Palm. For example, in the USA, Europe and Japan, IBM sold in the enterprise market Palm-based products branded as the IBM WorkPad Pc Companion.
B. As the originator and leader of the PDA market, Palm had experienced revenue growth from 1997 to 2000. The fiscal years 1998 through 2000 were highly profitable; with earning growing from $4,171 in 1999 million to $45,910 in 2000. However, the company was doing badly in second half of fiscal year 2001, poor rollout of the company’s Palm m500 model resulted in disastrous performance; which caused $356,476 million loss for the year.
For year of 2002, the increased competition has been significantly affect the demand, revenue, and profits. For the nine month ending March 1, 2002, Palm reported a net loss of $54.7 million, compared to the previous year’s $35.6 million profit. Total revenue for the same nine months period also decreased 43% over the previous year. At Solutions Group, revenue was $779 million, a 43% decline over the previous year, with Palm Source revenue of $8.2 million, a 27% decrease due to lower Palm OS device shipments.
Despite the ongoing losses, the balance sheet was satisfactory, with working capital of $247 million and leverage of only 0.76/1 (tangible). More troubling was the rapidly eroding market capitalization. Palm did not have debt service constraints, operating losses had resulted in negative cash flow, reducing Palm’s cash position to $285,645 million as of March 31, 2002
3. a. Suppliers (Highest)
In this case, Palm Model m500, there is a supply shortage at Flextronics International, Ltd, which is one of the two primary suppliers. The impact is long delay in delivering the newest PDA model; which has cause lost in revenue during that period. It is also due to non-cancelable contract with Flextronics to manufacture the older Palm models, which were experiencing a softening of demand.
B. Competitors
Among the Palm OS based handhelds, Handspring is its fiercest competitors. Handspring pose a high threat to Palm as the products are inherently similar due to the OS and the switching costs amongst the competition is low. The industry is dynamically changing and overlapping with other electronic devices, and the handheld industry seems to be shrinking as other electronic devices add PDA functions to their own devices.
C. Entrants
As the industry is changing so quickly, new entrants are coming into the market and reshaping the industry by introducing new features and functionality. The mobile phone industry is entering the PDA market by adding PDA features into their phones. Since the phone market is a much larger market the giants in the phone industry might come to dominate and reshape the industry.
D. Substitutes
Substitutes can be divided into 2 groups: PDAs with alternative OS and other devices
o PDAs with alternative OS
Pocket PCs have been rapidly changing up with Palms in the handheld industry and we can see that the Palm OS market share has been decreasing. With Microsoft behind the OS and PC manufacturers producing these Pocket PCs, they are powerful substitutes to Palm based PDAs
o Other devices
Other manufactures; such as Sony, for multimedia and entertainment capabilities like phones, are converging to adopt multiple functionalities, and when PDA applications are added to these devices, they become substitutes to Palms. This is a large threat as customers no longer need to buy a separate Palm.
E. Customers
Customers have a high bargaining power against Palm as the product functionality does not differ a lot among the different brands and there are numerous substitutes available that makes it extremely easy to switch to another product while retaining the same functionality. Also, most of the customers are individual buyers and since the PDA market is still considered small, the customer base is very unstable.
4. Currently, Palm, Inc is facing the tough challenges from all sides. In order to make a profit and survive, Palm, Inc has to rethink its strategy and position in the market.
Based on my personal opinion, they should exit the PDA hardware business and focus Its resources on growing PalmSource, building and expanding its operating system capabilities. This would allow other competitors to struggle for market dominance in the PDA sector. Based on the case studies, recently, Sony Corporation announced its $20 million investment in PalmSource in exchange for 6% equity position in the company. This would mean that Sony is interested in expanding its business and technical collaboration with Palm. In addition, they should also reduce the competition with the rivalry between the existing companies, which is in this case, Microsoft and Flextronics; Palm, Inc should be able to communication well with them.
5. No, the reasons are:
- Handheld market shrinking (attack from other devices)
- Palm market share shrinking (attack from Sony)
- It is operating under net loss
