Friday, June 1, 2001

Palm reading: an analysis of Palm, Inc.


By David Gewirtz

Man, I gotta tell you, the guys at Palm have been really taking it on the chin these last few weeks. From what you'd read in some of the trade press, you'd think the company was doomed. But a little careful analysis will show you that's quite far from the truth.

Part of the problem is that everyone's a little shell-shocked from the post-apocalyptic dot-com crash. Suffering from the business equivalent of post-traumatic stress disorder, technology businesses are erroneously getting lumped into the same category as dot-coms. But they're very different beasts.

The sort of dot-com epitomized by, say, or, was a business built on smoke and mirrors. Managers and investors proudly drank the bug juice and proclaimed that profitability was irrelevant. They tried to build businesses where the product was the stock value, rather than building businesses that made products.

Technology companies like Palm, Microsoft, and Lotus build real products with tangible proprietary value. In addition to excellent products used nearly universally in their markets, these companies also have loyal followings, possess exceptional market share, enjoy substantial brand awareness, are managed by smart people with solid business experience, and make money.

In short, these technology companies are everything the dot-coms weren't. In fact, if you were to look for a good, clear definition of what would make a solid company, you'd look for a company with solid products, loyal followings, good market share, brand awareness, good management, and the proven ability to make money.

"Real companies like Palm are solidly built, seaworthy vessels, made to survive and thrive on the high seas."

Active readers will know I often use ships at sea as an analogy for business. It fits here as well. The dot-coms were fragile ships, with little attention spent on seaworthiness. Most of the effort was spent making sure the boat looked pretty. There were a lot of people onboard and even more people at the dock to see them set sail. By contrast, real companies like Palm are solidly built, seaworthy vessels, made to survive and thrive on the high seas.

When the seas are calm, like they were up until a year or so ago, the dot-com ships looked real pretty on the water, and the more tangible companies looked, perhaps, a little less exciting. But when the seas got rough, as they are in our current economic climate, the dot-coms were crushed by the first low wave, while the solidly-built vessels like Palm and Microsoft simply turned into the wind, cancelled a few real estate projects, and released a lowered earnings report.