Even with the handheld market in the sales doldrums, an unnamed investor with an eye toward future returns is putting US$50 million into handheld device vendor Palm Inc.
In an announcement today, the Santa Clara, Calif.-based company said the investor, whom is not being identified, will in exchange receive a five-year note at 5 percent interest.
Company spokeswoman Marlene Somsak said the money will be used for general purposes, as well as for new initiatives in wireless technologies and for increasing sales to business leaders, including CEOs and chief technology officers.
"Overall, it just shows confidence in Palm and Palm's future," Somsak said.
Analysts said the investment may indicate confidence in what will happen in the personal digital assistant (PDA) market next year.
Kevin Burden, an analyst at International Data Corp. in Framingham, Mass., said that handheld sales have been stagnant this year largely because innovations have been evolutionary rather than revolutionary, without any must-have features prompting users to buy newer models. That could change next year, he said, when the promise of an integrated wireless device is more likely to be a reality.
"Maybe this investor is taking a look at Palm and taking a look at the overall handheld market" and trying to invest while stock prices are low, Burden said. "I suspect that's what's happening."
Ken Dulaney, an analyst at Gartner Inc. in Stamford, Conn., agreed, saying he believes the unnamed investor is looking ahead to a wave of customer excitement that could be inspired by the next iteration of Palm's software, Version 5. If that happens, investors could see sales rise and stock prices follow, he said.
"There's more upside to downside" in making such an investment, Dulaney said. "I think it's probably just someone looking at the numbers there. You don't take control [of a company] with $50 million, so it looks like more of an investment thing."
Andrew Seybold, owner of Los Gatos, Calif.-based consultancy group Andrew Seybold's Outlook 4Mobility, said the announcement could even suggest a synergy with another vendor, such as a content provider like Dulles, Va.-based America Online Inc. "We're only seeing one shoe drop in this thing," Seybold said. "There's got to be more than [just the money]. We just don't know yet."
Under the deal, the five-year note will be convertible into Palm stock at $4.63 per share, which represents 130 percent of the weighted average stock price for the five days prior to closing. Palm may force a conversion at any time after one year, provided its common stock has traded above $7.13 per share for a defined period of time, which the company declined to outline.
"This capital commitment demonstrates a high level of external confidence in Palm," Eric Benhamou, the company's chairman and CEO, said in a statement. "We're moving ahead on our strategic objectives," including a return to profitability and increased business sales, he added.