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Eric Benhamou: The Saga Of Palm (Part 3)

Posted on Friday, Sep 14th 2007

After a year of relative stability, Palm faced the market crash concurrently with a failed product launch. The combination of stock market problems and operational failure created a bad situation which was compounded by a lack of innovation in product development.

SM: Did the stock price sustain for a bit? The market started going bonkers some in April 2000. EB: It was not until 2001 that the markets really started slowing down. Throughout 2000, there was momentum which carried the company forward, and while the share price dropped some, it was still trading in the $50’s which was an incredibly high multiple.

The downturn occurred in multiple steps. The biggest hit occurred when Palm missed a new product introduction.

Are you familiar with the phrase Osborne, as in “when a company Osborne’s itself?” This happens when a company announces a product which obsoletes their own current product, and it is unable to deliver the new product. It basically ends the sales of the current product because customers are waiting for the new products, and the new products never reach the market. It creates the problem of injuring the existing products and rendering them worthless, and it also creates the problem of missing sales quotas as long as new demand cannot be met.

Imagine what would have happened to Apple if the iPhone was replacing an existing product, and Steve Jobs had announced in January they were only delivering limited quantities in June! We had a bit of that situation when we released a new generation of slim Palm V look alikes. It was called the M500 series. It featured a very focused form factor, and were the first really full color device. In April of 2001, the product had glitches at the last minute, after we had already introduced it, and these glitches made it so that we could not ship it. The management team totally dropped the ball.

SM: What was the management team at that point, and what were you thinking in terms of what you were trying to accomplish with the management team? EB: I had put in place a CEO. Carl Yankowski. In fact I had introduced him before the IPO, I wanted the new management team to lead the road show and be in front of investors. They had been in place a few weeks prior to taking the company public and he basically ran the company through the 2000 timeframe and into early 2001.

These operational problems happened a year after the IPO. This is also when things started to go bad for the company. Not only was there stock market turmoil, but there were operational problems as well. The Palm V was spectacularly successful. It had a nice profile and form factor, and it worked great. The 500 and 505 were nothing more than modest evolution and they should never have encountered the problems they did.

It was an indication the management team did not have the experience required to manage a company of that size where tolerance for errors was very, very small. From that point in 2001 forward, things went from bad to worse. The end market was not there to support continuous growth. The product was eventually delivered, but it was not a breakthrough product, it was simply evolutionary. There was no reason for satisfied Palm V customers to throw away the Palm V to buy this.

[To Be Continued]

[Part 2]
[Part 1]

This segment is part 3 in the series : Eric Benhamou: The Saga Of Palm
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