Is the market undervaluing Palm’s massive patent holdings?
There are two things that Palm owns that are of true value: webOS and a giant bucket full of patents. Either would be good reason for a larger competitor to purchase Palm, and according to some analysts, either is good reason to declare Palm to be undervalued (Palm stock plus Elevation Partner’s 1/3 share equals approximately one billion dollars).
That Montana-sized basket full of patents is good for several things. Especially when that basket of patents contain things like "Integrated Handheld Computing and Telephony System and Services," i.e. smartphone. For one, Palm can claim royalties when other companies use that patent. It also, at least to this point, has served as a barrier against most serious patent infringement cases (Hello, Cupertino). Having a lot of patents is also good for something else: when those patents are licensed by many companies, it gives the holder significant value. Palm's veritable trove of patents has lead PatentVest CEO Anthony Mazzarella to declare to Investors Business Daily that, “Based on our metrics, the value of Palm’s intellectual property is along the same order of magnitude as Apple. The market is overlooking the IP value in Palm, which has great value.”
It’s worth noting that Palm’s patents are almost exclusively in the realm of PDA and smartphone technology and user interfaces, while Apple’s span a wide range of products, including personal entertainment devices, home computers, servers, digital services, and smartphones. While we can’t say for certain, we think it’s safe to say that Palm may very well have the most impressive patent portfolio in the entire smartphone industry.
PatentVest’s metrics include the raw number of patent applications filed by a particular company, and the number of times those patents are cited by other companies’ patents, among other measures. A company must cite a patent that is similar to or the base for their own work. Put simply, the more times a patent is cited, the more that patent is worth, and the more one company cites another’s work, the more the latter is worth to the former.
So that begs the question, to whom would Palm be worth the most? According to Mazzarella, Samsung and Nokia. Samsung’s patent pool, impressive in its own right, cites Palm’s patents more than any other company, followed by Nokia. Microsoft is in third, with about half as many Palm citations as Samsung. Seeing as both companies are busy with their own product strategies and operating systems (Bada for Samsung and both Symbian and Maemo/Meego for Nokia), any value they may place on Palm would most likely be on the patent front.
But Will Stofega, program manager for mobile research with IDC, doesn’t see a purchase of Palm by Samsung or Nokia as a leading possibility. The only reason to buy a company exclusively for their patents is if those are the only items of value that company holds. Palm is more than just a stack of patents: they have well-established carrier and manufacturer relationships, a high-quality if under-appreciated mobile operating system, and a good bit of survival cash on hand.
Stofega believes that both Nokia and Samsung are likely to concentrate on making their own strategies succeed. Trying to mix Palm’s products in with the two smartphone operating systems each supported by the companies (Samsung also produces Android handsets, along with several non-smartphone mobile devices) would be too expensive and too distracting of a venture.
He thinks that maybe the market has turned on Palm too quickly (and we may agree with him), "Palm has some time left. Not a great deal of time to change course, but they have time. I think everyone is throwing in the towel a little too quickly. They still have a path. Some may not hold them in good standing, but I think there's a lot more to it right now."