palmOne, Inc.  

(408) 503-7000

400 N. McCarthy Blvd.
Milpitas, CA 95035
www.palmone.com

Sales

$950 million

Business Description

We palmOne, Inc. is a leading global provider of handheld computing and communications devices. We target consumer, business, education and government users around the world. palmOne currently offers the Zire, Tungsten and Treo families of handheld computing and communications devices and related add-ons and accessories. Since palmOne introduced its first handheld computer in 1996, we have shipped over 26.4 million handheld devices worldwide as of May 31, 2004.

palmOne’s total revenue has grown from approximately $1 million in fiscal year 1995 to $949.7 million in fiscal year 2004. We hold the leading worldwide market share in handheld computers and are emerging as a key provider of handheld communication (smartphone) devices by virtue of our critically acclaimed Treo product line.

In reviewing our historical financial information, including all historical information presented in this Form 10-K, investors should be aware that our historical results of operations include results from PalmSource as discontinued operations through October 28, 2003, the date of the PalmSource spin-off and do not include the results of operations of Handspring until October 29, 2003, the date of acquisition. As such, the results are not strictly comparable year to year. Please refer to Notes 3 and 4 to consolidated financial statements for a more detailed description.

Corporate Background

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 computing 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 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., or palmOne.

Products and Services

palmOne sells products under three sub-brands: Zire, Tungsten and Treo. The Zire family is primarily designed for and targeted at consumers, including entry-level and digital media enthusiasts. The Treo and Tungsten lines are primarily designed for and targeted at business professionals and enterprise users. These product families span the handheld computing and communications device market.

Our products are differentiated in terms of price, functionality and software applications that are delivered with the device. Standard software in all of our products includes an address book, date book, clock, to do list, memo pad, note pad and calculator. Other features that can be found in some of our products include:

· wireless communication capabilities, such as Bluetooth, WiFi, CDMA and GSM/GPRS, to enable messaging, email and web browsing;

· multimedia features, allowing users to capture and view photos, capture and view video clips and listen to MP3 music;

· an infrared port for exchanging information between devices;

· a secure digital/multimedia card, or SD/MMC, slot for stamp-sized expansion cards for storage, content and input/output devices;

· data synchronization technology (Hotsync) enabling the device to synchronize with desktop applications such as Microsoft Outlook; and

· productivity software, such as DataViz®’s Documents to Go® which allows users to create, view and edit Microsoft Word and Excel files and view and share PowerPoint presentations.

Zire

The Zire’s mix of price, functionality and performance has expanded our available market to new users, as indicated by our user registration data. We believe that by making an entry-level product such as the Zire available, we are driving the early adoption of handheld devices by consumers who would not otherwise own a handheld. This increases revenue and the potential for future upgrade purchases as customers become accustomed to handheld technology and demand additional functionality in the future. There are three products in the current Zire family.

The Zire 21 handheld was introduced in October 2003 and is a successor to the original Zire with a suggested retail price, or SRP, under $100. This handheld includes a monochrome 4-bit Grayscale display, a 126MHz Texas Instruments Open Mobile Application Platform, or OMAP, processor and is based on Palm operating system, or Palm OS, 5.2.1.

The Zire 31 handheld was introduced in April 2004. It is aimed at attracting the first-time buyer who wants a more full-featured, low-cost handheld. The Zire 31 is the lowest cost color handheld on the market and features 16MB of memory, MP3 playback with a stereo headphone jack, five-way Navigator Button to allow access to information with just one hand, improved PIM applications and an expansion slot which supports SD/MMC and secure digital input output, or SDIO, expansion cards. The Zire 31 is powered by a 200MHz Intel XScale processor and is based on Palm OS 5.2.8.

The Zire 72 handheld was also introduced in April 2004. It is a successor to the Zire 71 and is aimed at young professionals who want media, productivity and all-around versatility. The Zire 72 features a 1.2 megapixel integrated camera, video capture with audio, MP3 playback with RealOne Mobile Player loaded into read-only memory, or ROM, the ability to listen to stereo quality MP3 music and watch video clips using the Kinoma player, best-in-class office compatibility, 32MB of memory, five-way navigation button, an SD/MMC slot and a 320x320 transflective Thin Film Transistor, or TFT, color display. The Zire 72 is powered by a 312MHz Intel XScale processor and is based on Palm OS 5.2.8.

Tungsten

Tungsten handhelds craft advanced technologies into pocketable solutions that provide uniquely efficient handheld experiences for mobile professionals and serious business users. There are three products in the current Tungsten family.

The Tungsten E handheld was introduced in October 2003 and is aimed at cost-conscious professionals who require premium power and performance. With the Tungsten E, users can create, edit and view Microsoft Word, Excel, and other Windows-compatible files as well as listen to MP3s. The Tungsten E features five-way navigation, an SD/MMC slot, a 320X320 transflective TFT color display and 32MB of internal memory. The Tungsten E is powered by a 126MHz Texas Instruments OMAP processor and is based on Palm OS 5.2.1.

The Tungsten T3 handheld was introduced in October 2003 and includes a slider design that conceals the Graffiti II writing area, five-way navigation, an SD/MMC slot and a 320x480 transflective TFT color display which rotates from portrait to landscape with the touch of a button. This handheld offers a voice recorder for important memos, improved PIM capabilities, and ability to create, edit and view Microsoft Word, Excel and other Windows-compatible files as well as the ability to listen to MP3s, view photos and watch video clips with high-quality sound and video clarity. The Tungsten T3 has integrated wireless capability using Bluetooth technology, which is a short-range radio technology facilitating data transfer between compatible Bluetooth devices such as mobile phones, laptops, printers, access points and other handhelds. Using a compatible Bluetooth-enabled mobile phone as a modem, a user can access the Internet or email wirelessly. The Tungsten T3 includes 64MB of memory, is powered by a 400MHz Intel XScale processor and is based on Palm OS 5.2.1.

The Tungsten C handheld was introduced in April 2003. This product was designed for the mobile professional in a wireless networked campus, a home network or public hotspots that provide users broadband wireless Internet access. The Tungsten C includes integrated WiFi capability, a built-in keyboard, five-way navigation, an SD/MMC expansion slot, a 320x320 transflective TFT color display and 64MB of memory. It includes virtual private network, or VPN, software to access behind-the-firewall data and email using palmOne’s VersaMail 2.5 email client. The Tungsten C is powered by a 400MHz Intel XScale processor and is based on Palm OS 5.2.1.

Treo

Treo smartphones seamlessly combine a full-featured mobile phone and wireless data applications, such as email, messaging and web browsing, in a small, compact, yet easy-to-use device that simplifies both business and personal life by integrating applications typically included in separate devices into one device. Our target customer for the Treo is an individual who would otherwise carry multiple devices such as a cell phone, a laptop or handheld computer.

The Treo 600 was first shipped in September 2003 and is an integrated device with a smaller, more phone-like form factor than previous generations of smartphone solutions. The Treo 600 is available in a dual-band CDMA version and a quad-band GSM/GPRS version and is offered by carriers such as AT&T Wireless, Cingular, KPN, Orange, Rogers Wireless, Sprint, T-Mobile, and Verizon. The Treo 600 has the following features: a QWERTY and numeric keyboard, 32MB of memory, a bright color display, a five way navigation button for ease of use with one hand, a built-in VGA-resolution camera, an SD/MMC expansion slot, as well as a new version of the Blazer web browser. This smartphone uses a 144 MHz Texas Instruments OMAP processor and is based on Palm OS 5.2.1H.

Add-ons and Accessories

palmOne offers add-ons and accessories to enhance the end user’s handheld and smartphone experience, including portable keyboards, SD/MMC expansion cards for storage and content, modems and carrying cases. In addition, we provide the ability to purchase and download software applications through a link on our palmOne.com website.

Customers

We sell our products to distributors, retailers, resellers and wireless carriers and to end-users. In fiscal years 2004, 2003 and 2002, our customers Ingram Micro represented 15%, 19%, and 17% and Tech Data represented 7%, 9% and 10% of consolidated revenues, respectively. Ingram Micro and Tech Data are distributors of our products.

Competition

Competition in the handheld computing and communications device market is intense and characterized by rapid change and complex technology. The principal competitive factors affecting the market for our handheld computing and communications devices are functionality, features, operating system, styling, brand, price, availability of third party software applications, customer and developer support and access to sales and distribution channels. Our devices compete with a variety of mobile devices, including pen- and keyboard-based devices, mobile phones, converged voice/data devices and sub-notebooks and personal computers. Our principal competitors include:

· personal computer companies, such as Acer, Apple, Dell, Hewlett-Packard and Toshiba which also develop and sell handheld computing products;

· consumer electronics companies, such as Casio, Sharp and Sony which also develop and sell handheld computing products;

· wireless email companies, such as Research In Motion;

· mobile handset manufacturers, such as Audiovox, HTC Corporation, Kyocera, LG, Motorola, Nokia, Samsung, Sanyo, Sendo, Siemens, Sierra Wireless and Sony-Ericsson, which also develop smartphone products; and

· a variety of early-stage technology companies such as Danger and Tapwave.

Most of our competitors or potential competitors have significantly greater financial, technical and marketing resources than we do. They also may devote greater resources to the development, promotion and sale of their products than we do.

We believe, however, that we compete favorably with respect to some or all of the competitive factors affecting the handheld computing and communications device market, which is reflected by our greater installed-base of handheld computing users, our leading market share and strong brand recognition.
 

Ticker

PLMO