Dell Sees Talk It Wants Palm To Push Into Smartphones

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With speculation swirling as to who would want to buy handheld device maker Palm computer maker Dell has been popping up as a would be suitor.

Recent talk that Dell would want to buy Palm is being spurred by Dell's decision to no longer sell its Axim handheld computer.

While Dell has the financial clout to make an acquisition of Palm's size, some analysts and investors don't think any sort of deal is imminent. They say Dell, which has historically shied away from big acquisitions, is focused more on turning around the company then getting into the smartphone market via Palm.

"Dell has its hands full with its current problems," said Shebly Seyrafi, an analyst at Caris & Company, which initiated coverage of Dell Thursday with a above average rating. "Dell is focused on right sizing the ship versus undertaking an acquisition like this."

Palm spokeswoman Marlene Somsak declined to comment. Officials at Dell weren't immediately available comment.

Palm, whose shares have risen 27% since hitting a 52-week low late December, has been buoyed by takeover speculation. Handset giants Nokia and Motorola were each believed to have expressed interest in the maker of smartphones, while a group of private equity firms were also said to have been in the mix. Palm's decision to tap Morgan Stanley as an advisor added fuel to the rumor fire. Chief Executive Ed Colligan said recently that the firm has been its banker for many years, but wouldn't comment on whether the company has asked it to do any special projects.

The company, whose line of Treo smartphones commands a small but loyal base of customers, faces competitive pressures from the larger handset makers. Research in Motion, for example, dominates the market for mobile e-mail devices to corporate customers, while larger players such as Motorola have a wide range of products that Palm can't compete with. Colligan said the company was streamlining its operations in an effort to more quickly put out a less expensive product to the market.

While the smartphone market is expected to see growth, industry watchers wondered why Dell would want to get into that area, given the well heeled competitors and the fact that the company stopped selling its own handheld computer device.

"They just axed the Axim line," said Mark Mowrey, a analyst at Al Frank Asset Management, which owns shares of Dell. Dell buying Palm is "strange to me," said the analyst. Mowrey said it wouldn't make that much sense for Dell to buy Palm since having the actual hardware device may not add too much value when servicing corporate customers. Mowrey did note that Dell competitor Hewlett-Packard has a "somewhat respected" presence in the smartphone market.

Dell, which has been struggling for sometime now, recently launched a restructuring plan which resulted in the ouster of CEO Kevin Rollins and the return of Michael Dell to the helm. The company has said it would look for acquisitions, largely in the services market. Still analysts have been speculating about a host of companies Dell could or may want to buy.

Take Brent Bracelin, an analyst at Pacific Crest Securities, which earlier this week came out with a laundry list of potential targets for Dell. While Palm landed on the list, Bracelin said that's one of the dozen companies Dell could buy. Bracelin said that Palm isn't the only way for Dell to get into the smartphone market and named High Tech Computer Corp out of Taiwan and Motion Computing, the Texas private handheld device maker as examples of other potential targets.

"The reality is Dell is at the point where the company is looking at several IP technologies," said the analyst. "To say some sort of deal between Palm and Dell is imminent is way premature."

Recently, shares of Dell were trading up 1.6% or 39 cents to $24.63 on volume of 13.5 million shares. Average daily volume is 23.2 million shares. Shares of Palm were recently up 1% or 19 cents to $17.02 on volume of 4.3 million shares.

-By Donna Fuscaldo, Dow Jones Newswires; 704-371-4263; donna.fuscaldo@dowjones.com

Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires"

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