Palm, Inc. is a provider of mobile products that enhance the lifestyle of individual users and business customers worldwide. Palm creates thoughtfully integrated technologies that better enable people to stay connected with their family, friends and colleagues, access and share information that matters to them most and manage their daily lives on the go. Palm’s products for consumers, mobile professionals and businesses currently include Palm Pre™, Treo™ and Centro™ smartphones, as well as software, services and accessories. Palm products are sold through select Internet, retail, reseller and wireless operator channels throughout the world, and at Palm online stores.
We were incorporated in 1992 as Palm Computing, Inc. In 1995, we were acquired by U.S. Robotics Corporation. In 1996, we sold our first handheld computer, quickly establishing a significant position in the handheld computer industry. In 1997, 3Com Corporation, or 3Com, acquired U.S. Robotics. In 1999, 3Com announced its intent to separate our business from 3Com’s business to form an independent, publicly-traded company. In preparation for that spin-off, Palm Computing, Inc. changed its name to Palm, Inc., or Palm, and was reincorporated in Delaware in December 1999. In March 2000, Palm sold shares in an initial public offering and concurrent private placements. In July 2000, 3Com distributed its remaining shares of Palm common stock to 3Com stockholders.
In December 2001, Palm formed PalmSource, Inc., or PalmSource, a stand-alone subsidiary for its operating system, or OS, business. On October 28, 2003, Palm distributed all of the shares of PalmSource common stock held by Palm to Palm stockholders. On October 29, 2003, we acquired Handspring, Inc., and changed our name to palmOne, Inc.
In connection with our spin-off of PalmSource, Palm Trademark Holding Company, LLC, or PTHC, was formed to hold trade names, trademarks, service marks and domain names containing the word or letter string “palm”. In May 2005, we acquired PalmSource’s interest in PTHC, including the Palm trademark and brand. In July 2005, we changed our name back to Palm, Inc., or Palm.
In October 2007, we sold shares of series B redeemable convertible preferred stock, or Series B Preferred Stock, to the private-equity firm Elevation Partners, L.P, or Elevation. We utilized these proceeds, along with existing cash and the proceeds of new debt, to finance a one-time cash distribution to stockholders of record as of October 24, 2007, or the Recapitalization Transaction.
In January 2009, we sold units, or the Series C Units, to Elevation, each of which consists of one share of our series C redeemable convertible preferred stock, or Series C Preferred Stock, and a warrant exercisable for the purchase of 70 shares of Palm’s common stock, or the Detachable Warrants. Elevation purchased additional shares during our underwritten public offering in March 2009. On an as-converted and an as-exercised basis, the Series B Preferred Stock, Series C Preferred Stock, common stock and warrants currently owned by Elevation represented 33% of our voting shares as of May 31, 2009. As of May 31, 2009, Elevation is entitled to designate three members to Palm’s Board of Directors.
Our goal is to establish Palm as a leading global mobile device company. Our current focus is on smartphones, which we define as mobile phones with advanced voice, data and internet capabilities which run complete operating system software that provides a standardized interface and platform for application developers. The market for smartphones is expected to grow considerably as consumers replace their voice- centric cell-phones with these full-featured, software-driven mobile devices. We believe that over time we can increase Palm’s share of the growing smartphone market by successfully executing against the following strategic objectives:
•Differentiate our products through inspiring design and the seamless integration of hardware, software and services to deliver a delightful user experience. We are focused on bringing to market highly innovative, easy-to-use products which create compelling user experiences and lasting consumer connections. We believe that designing, owning and integrating the operating platform and device hardware is the best way to maintain the control and flexibility necessary to deliver the sophisticated functionality that consumers increasingly demand from their mobile devices. Our proprietary Palm webOS™ mobile operating system was built to accommodate complete software and hardware integration, enabling a world-class, differentiated user experience. For business customers who operate in a Windows environment, we strive to differentiate our Windows Mobile products by adding a Palm user interface and Palm shortcuts to enhance the user experience.
•Develop a robust Palm webOS ecosystem of application developers that provide consumers with a range of products and services to enhance their Palm devices. Palm believes in the power of open platforms and has a rich history of fostering excellent relationships with third-party application developers. We created the first successful open mobile operating system, and we are continuing that tradition with Palm webOS. Palm webOS’ architecture is based on industry-standard web technologies, enabling a broad developer community to create compelling applications. We believe this will enhance our product offerings, and will strengthen customers’ preference for Palm products.
•Build a brand synonymous with innovative and intuitive mobile devices. In the United States, the Palm brand has widespread recognition and identification with innovative, easy-to-use mobile products. We are focused on strengthening this connection and expanding Palm’s brand recognition in other international markets. We believe we can enhance customer loyalty and establish lasting customer connections to the Palm brand by consistently delivering innovative and easy-to-use products. We also strive to strengthen our brand through marketing, public relations, customer service and support, as well as community involvement. We believe that developing a strong Palm brand is key to establishing market leadership.
•Maintain a flexible, outsourced business model. Palm leverages relationships with high-quality, third-party manufacturers, technology and service suppliers and wireless carriers to help design, manufacture, distribute and support our products and services worldwide. Working with outsourced manufacturing and supply partners gives us the flexibility to scale our business while limiting our fixed costs and level of capital investment. This outsourced business model also helps us react quickly to changes in the marketplace and allows us to focus on our core competency as a mobile technology and design innovator.
Products and Services
Palm produces smartphones for the consumer and business markets. Our smartphones incorporate Palm’s hallmarks of innovation coupled with powerful simplicity and provide a wide range of productivity tools and personal and entertainment applications. Functionality and features found in all Palm smartphones include:
•support for Interim Standard 95/CDMA2000/EvDO or GSM/GPRS/EDGE/UMTS/HSDPA mobile telecommunications standards used to transmit voice and data;
•wireless data applications, such as email, messaging and web browsing;
•wireless communication capabilities, such as Bluetooth and/or wireless fidelity, or Wi-Fi;
•multimedia features and productivity software;
•“instant-on” one-touch access; and
•non-volatile flash memory that protects stored data.
Historically, we have seen evidence of seasonality with sales strengthening in the second and fourth quarters of our fiscal year as wireless carriers, distributors and retailers purchase product in anticipation of the December holiday selling season and the Mother’s Day, Father’s Day and graduation selling seasons, respectively.
As of May 31, 2009, we had a total of 939 employees, of whom 111 were in supply chain, 517 were in engineering, 177 were in sales and marketing and 134 were in general and administrative roles. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good.