Strategic Alternatives and Recommended Strategies

Handspring, Inc., 2002

My focus today, 100 percent, is making Handspring successful, making
handheld computing successful I still view the handheld computing
industry as very embryonic; it's very early on. It's like 1982 of the PC
world. And the big things haven't happened yet. As much success as Palm
has had, and as much success as Handspring is currently having, it's
just the beginning, and it takes a lot of concentrated effort to build a
big business. And we think Handspring's going to be a very big
business.1

Jeff Hawkins, Handspring's Chairman and Chief Product Officer

Jeffrey Hawkins: The Journey from GRID Systems to Treo

Handspring was founded in 1998 by three key executives from Palm
Computing, Jeff Hawkins, currently Handspring's Chairman and Chief
Product Officer; Donna Dubinsky, President and CEO; and Ed Colligan, the
Chief Operating Officer (CEO). At Palm Computing, Hawkins had been the
chief inventor, Dubinsky the President and CEO, and Colligan the Vice
President (VP) of Marketing. The three veterans of handheld computing
were credited with reviving the industry through their successful launch
of the Palm Pilot in 1996.

The widespread success and ongoing technological improvements found in
today's handheld computing devices are a direct result of Hawkins's
design work at GRiD Systems back in the early 1980s. After graduating
from Cornell University in 1979 with a bachelor of science degree in
electronic engineering and a short tenure at Intel, Hawkins left to
begin working at GRiD Systems in 1982. While at GRiD Systems, he
developed a high-level programming language called GRiDTask that would
later fuel further technological advancements in handheld computing,
particularly in the area of text entry. Hawkins's work on GRiDTask also
increased his own personal interest in the area of brain research.

In response to his related interest, Hawkins left his position at GRiD
in 1986 in order to pursue a Ph.D at Berkeley. As Hawkins explained, he
was in search of answers to questions such as "What does it mean for a
brain, or for a system like a brain, to understand its environ-

ment? What is a reductionist approach to understanding language, vision,
and hearing? and What are the concepts underlying that?"2 Although his
Ph.D. thesis proposal was rejected on the basis that no other professors
at Berkeley were pursuing similar research, a pattern classifier program
that Hawkins had written was patented and used as a
hand-printed-character recognizer. With his thesis proposal rejected and
experiencing difficulties with being a graduate student after having had
a successful career, Hawkins decided that he would return to the
computer industry in lieu of pursuing his academic interests. Hawkins
returned to GRiD Systems as Vice President of Research and began working
on the first handheld computing device, the GRiDPad, which was released
in 1989. Hawkins's personal goal at the time he rejoined GRiD Systems
was "to become famous enough to and wealthy enough to really promote and
sponsor significant research in neurobiology and theoretical
neurobiology."3

The GRiDPad measured 9x12x1.4 inches and ran on a 10MHz 80C86 processor
with a DOS platform. The handheld used GRiD's own software solutions
that were written in GRiDTask. With a color graphics adapter (640x400)
display, the GRiDTask cost $2,370, exclusive of software, and used 256KB
or 512KB battery-backed RAM cards. Using the character-recognition
engine that Hawkins had developed, users were able to enter text by
using either a pen or a keyboard. The GRiDPad was marketed primarily to
data collection users in areas such as transportation and warehousing as
well as to police, nurses, and census takers.

In Hawkins's mind, the GRiDPad was only a first step toward his
revolutionary vision for handheld computing. Hawkins believed that the
success of handheld computers depended on developing a product that was
both small and lightweight enough for people to carry around with them
all the time. Hawkins developed the specifications for a handheld
computing device that was aptly named "Zoomer"—short for consumer, the
device's intended market. However, the executives at GRiD were opposed
to plans for entering the consumer market. Unable to find support from
within, Hawkins left GRiD in 1992 with a software license for the
GRiDPad and founded Palm Computing.

Corporate Governance

Exhibit 1-A shows the 7 members of the Board of Directors of Handspring,
Inc., 5 of whom are external directors. Exhibit 1-B shows the 10 members
of Handspring's executive team.

The Palm Pilot Era

On the heels of the GRiDPad's success, several high-tech companies,
including IBM, NCR, NEC, and Samsung, joined in the rush to develop the
next smaller computing device. Apple had been in the development phase
of a handheld computing device since 1987. In 1992, John Sculley, then
CEO of Apple, coined the termed "personal digital assistant" (PDA).4

Following an initial commercial failure with the launch of the Zoomer,
Palm went back to the drawing board and re-emerged in 1996 with its
second product, the Palm Pilot. U.S. Robotics funded the development of
the Palm Pilot through its acquisition of Palm Computing in 1995 for $44
million in stock. It was at this time that Palm transformed itself from
a strictly software company to one that would develop an entire
product—both hardware and software. Hawkins created what he calls "a
virtual company" by partnering with several hardware design and
contract-manufacturing companies to bring the product to market. The
Palm Pilot was a success, and as a result, Jeff Hawkins, along with his
colleagues Donna Dubinsky and Ed Colligan, were credited with reviving
the handheld computing industry. The Palm Pilot was the most successful
product launch in computing history, selling faster than VCRs, color
TVs, cell phones, and personal computers.

Exhibit 1

Board of Directors and Executive Team: Handspring, Inc. «•'!

A. Board of Directors

Donna L. Dubinsky Jeffrey C. Hawkins

President, CEO and Acting Chairman and Chief Product Officer

Chief Financial Officer Handspring, Inc.

Handspring, Inc.

L. John Doerr

Kim B. Clark General Partner

Dean
Kleiner, Perkins, Caufield & Byers

Harvard Business School

William E. Kennard

Bruce W. Dunlevie Managing Director

Managing Member The Carlyle Group

Benchmark Capital

Mitchell E. Kertzman CEO and Chairman Liberate Technologies

B. Executive Team

Jeffrey Hawkins

Founder, Chairman and Chief Product Officer

Jeff Hawkins co-founded Handspring with Donna Dubinsky in July of 1998
after 5 years together at Palm Computing. In 1994, Hawkins invented the
original PalmPilot products and founded Palm Computing. He was often
credited as the designer who reinvented the handheld market.

An industry veteran with nearly 20 years of technical expertise, Hawkins
currently holds nine patents for various handheld devices and features.
His vision for handheld computing dates back to the 1980s, when as Vice
President of Research at GRID Systems Corporation he served as principal
architect and designer for the GRiDPad and GRiD Convertible. Prior to
that, he held key technical positions with Intel Corporation. Hawkins
earned a B.S. in electrical engineering from Cornell University.

He was also the Founder and Executive Director of the non-profit Redwood
Neuroscience Institute, a scientific research institute working on
theories and mathematical models of brain function (www.rni.org).

Donna Dubinsky Founder and CEO

Donna Dubinsky co-founded Handspring with Jeff Hawkins in July 1998 to
create a new breed of handheld computers for consumers. As President and
CEO of Palm Computing, Dubinsky helped make the PalmPilot the
best-selling handheld computer and the most rapidly adopted new
computing product ever produced. When Dubinsky first joined Hawkins at
Palm Computing in 1992, shortly after the company was founded, she
brought with her more than 10 years of marketing and logistics
experience from Apple and Claris. Dubinsky and Hawkins introduced the
original PalmPilot in February 1996, a move that revitalized the
handheld computing industry.

In addition to her position as CEO of Handspring, Dubinsky currently
serves as a Director of Intuit Corporation and is a Trustee of the
Computer History Museum. She earned a B.A. from Yale University and an
M.B.A. from the Harvard Graduate School of Business Administration.

Exhibit 1

Board of Directors and Executive Team: Handspring, Inc. (continued)

Ed Colligan

Founder, President and COO



Ed Colligan joined Handspring to lead the development and marketing
efforts for a new generation of handheld computers. As the Vice
President of Marketing for Palm Computing, Ed Colligan worked with Jeff
Hawkins and Donna Dubinsky to lead the product marketing and marketing
communications efforts for Palm, including the successful positioning,
launch, and marketing of the popular Palm product family.

Prior to Palm, Colligan was Vice President of Strategic and Product
Marketing at Radius Corporation. During his eight years there. Colligan
helped make Radius the brand leader in Macintosh graphics, graphic
imaging, and hardware development.

Colligan's multiple successes had earned him several marketing industry
accolades. Marketing Computers Magazine named him the 1997 Marketer of
the Year, and Advertising Age named him one of the Top 100 Marketers of
1997, an award that spanned all product categories. He earned an B.A.
from the University of Oregon.

Bill Slakey

Chief Financial Officer

Before joining Handspring in September, 2002 Bit Slakey was Chief
Financial Officer at W J Communications, a leading RF semiconductor

company. Prior to that, he was CFO at SrapTrack. a QUALCOMM company that
pioneered the industry's most advanced GPS-based wireless tracking
system for pinpointing wireless phones, PDAs, pagers and other wireless
devices.

Slakey had over 16 years of experience in financial management,
including a senior controller position at SCOM's Palm Computing Division
and various financial rotes spanning 10 years at Apple Computer.

Slakey earned a B.A. from the University of California and an M.B-A,
from the Harvard Graduate School of Business Admnstoalioa

John Hartnett

Vice President, Worldwide Operations

John Hartnett joined Handspring from MetaCreations, where he served most
recently as Senior Vice President of Marketing, Support & Operations for
the United States. At MetaCreations, he was responsible for developing
the marketing, branding and advertising strategies including online
marketing and web site redesign.

Prior to MetaCreations, Hartnett served as Director of International
Operations at Claris, where he developed and managed the operations
business plan and was part of the lead team in the merger of the
Applesoft and Claris business. Hartnett also spent time at AT&T GIS,
Digital Equipment, and Wang. Hartnett earned a Marketing Degree through
the Marketing Institute of Ireland and a post grad diploma in Finance
through the ACCA.

Exhibit 1

Board of Directors and Executive Team: Handspring, Inc. (continued)



Patricia Tomlinson

Vice President, Human Resources

With over 20 years of experience in the human resources field, Patricia
Tomlinson came to Handspring from Edify Corporation where she was
responsible for the worldwide human resources department. She also
designed and implemented all HR-related programs and led the worldwide
integration of all HR-functions for the merger of Edify with Security
First Technologies.

Prior to Edify Corporation, Tomlinson's previous work experience was at
Xerox Corporation, Synopsys, Inc., and Apple Computer, Inc. She earned a
B.A. in Sociology from Pomona College in Claremont, California and
completed the Program for Management Development from Harvard Business
School.

Celeste Baranski

Vice President, Engineering

Celeste Baranski joined Handspring with over 18 years of engineering,
design, and management experience in the mobile computing industry. Most
recently, Baranski worked at Hewlett Packard Company as Research and
Development Manager of its Mobile Computing Division, where she led R&D,
manufacturing introduction, and quality assurance for the company's
laptop computer product line.

Before Hewlett Packard, Baranski worked as a consultant and Director of
R&D for Norand Corporation, where she was in charge of product design
and engineering management for various companies including P'arlroncs.
Kalidor. IDEO and Divicom. Prior to that she co-founded arxj served as
Vice President of Hardware Engineering for EO Incorporated, and was also
among the first employees at GO Corporation where she designed the first
GO pen-based computer.

Baranski has also held technical staff positions at GRiD Systems and
Rolm Corporation. She earned both a B.S. and a M.S. in Electrical
Engineering from Stanford University.

David Pine

Vice President and General Counsel

David joined Handspring in May 2000 as Vice President and General
Counsel. Prior to Handspring, he served as Senior Vice President and
General Counsel for Excite@Home, a broadband online service provider.
Before that he was Vice President, General Counsel of Radius Inc., a
manufacturer of Macintosh computer peripherals. He started his career in
private practice with Fenwick & West, LLP, a Silicon Valley law firm
representing startup and high-growth technology companies. He also has
been involved in government and politics and has served as a State
Representative in the New Hampshire Legislature.

He earned a B.A. degree in government from Dartmouth College, where he
was awarded a Harry S. Truman Scholarship, and a J.D. degree from the
University of Michigan Law School.

Exhibit 1

Board of Directors and Executive Team: Handspring, Inc. (continued)

Joe Sipher

Vice President, Worldwide Marketing



Joe Sipher joined Handspring in May 2000. Sipher was a long time veteran
of the handheld industry, having joined Palm, Inc. in 1993. His most
recent role there was serving as Palm's first and only "Palm Fellow."

Before his fellowship, Joe managed Palm's wireless business, including
the definition, development, and introduction of the Palm VII wireless
Internet handheld. Joe was responsible for the hardware and software
development of the breakthrough Palm VII product, and spearheaded the
creation of Palm's wireless Internet service, Palm.Net. Before the Palm
VII, Joe managed the PalmPilot product line and was a product manager on
the original Pilot project.

Prior to Palm, Inc., Joe's work experience included positions at
Microsoft and Apple. He held five patents pertaining to handheld and
wireless technology. He earned a B.A. and an M.B.A. with high
distinction from the University of Michigan.

Gregory Woock

Vice President, Worldwide Sales

Gregory Woock joined Handspring in 1999 with over 10 years of experience
in sales and marketing within the high-tech industry. Prior to
Handspring, Woock served as VP of Sales, at Creative Labs, Inc. As one
of the original members of the pre-lPO team, Mr Woock helped build
Creative from a small start-up into a dominant brand. Mr Woock was
responsible for Sales, Channel marketing, Sales training and Sales
operations in the United States, Canada and Latin America. Woock earned
his B.A. from Columbia College in Chicago

The Exodus at Palm



By 1998, Hawkins, Dubinsky, and Colligan were already setting the stage
for their departure from Palm and the formation of their own handheld
computing company. Collectively, the three executives did not believe
that Palm was a strategic match for 3Com (previously U.S. Robotics) and
requested that Palm be spun off as a separate company. Eric Benhamou,
3Com's CEO, insisted that Palm would never be spun off because it was
simply too important to the business. In addition to wanting a Palm
spinoff, the trio also felt pressured to deliver products too quickly.
As an example, Hawkins pointed to the fact that he felt pressured to
deliver a wireless handheld in the form of the Palm VII. As Hawkins
describes, "We were still at U.S. Robotics at the time, and the CEO,
Casey Coswell, kept saying, 'I want you to do a wireless Palm.'" Hawkins
objected on the basis that he would not have a great solution to
deliver, but he ultimately yielded to the pressure by doing the best
that he could with the development and subsequent release of the Palm
VII wireless handheld in 1999.5

In response to these frustrations and armed with a license for the Palm
operating system as well as the confidence that they could develop
improved handheld computing devices, the three executives left Palm in
July 1998 to form Handspring. September 14,1999, one day after

3Com announced its plans to spin off Palm, Handspring unveiled its first
handheld computing device, the Visor.

The Handspring Visor

The Visor featured the Springboard expansion slot, consisting of a
series of modules for adding the capabilities of a digital camera, a
wireless Web device, a cellular phone, or an MP3 music player. Many Palm
enthusiasts followed Hawkins and his colleagues over to Handspring. The
new company was overwhelmed with orders, and it took nearly four months
before the supply was satisfying consumer demand for the new product. By
the summer of 2000, Handspring's market share for Palm-based PDAs had
reached 40%. Handspring went public in June 2000, with an initial public
offering (IPO) price of $20 per share. By October 2000, Handspring's
stock price skyrocketed to $95 per share. These successes attracted the
attention of Palm and, throughout most of 2001, Palm and Handspring
engaged in a price war with their competing handheld computing devices.
Meanwhile, Microsoft was pressing ahead with its own version of a
handheld computer, the Pocket PC, which had been introduced in early
1998.

In response to the increasing competition and pricing pressure in the
handheld computing market, Handspring refocused its strategy with the
introduction of the Treo line of communicators in fall 2001.
Handspring's executives had decided that the market for strictly PDAs
had become too crowded. The resulting price wars had eroded Handspring's
margins and prevented the start-up from achieving its much-anticipated
profitability.

THE TREO COMMUNICATOR • t:

Handspring had learned a lot of valuable lessons through the development
of its Visor product line. In particular, the two-year development
process of the VisorPhone module taught the company several valuable
lessons about phone and radio technology. In turn, Handspring's
designers were able to utilize this experience in the development of the
Treo product line, which began in summer 2000 and was completed within
14 months.

Under the code name "Manhattan," the Treo product development team
consisted of both hardware and software developers. Each of the
communicator's component parts also had New York-inspired names, such as
"Shea Stadium" for the Graffiti handwriting system, "Central Park" for
the screen, and "Metro" for the circuit board. In stark contrast to
their rival Palm Computing, which had recently split its hardware and
software businesses into two separate companies, Handspring's hardware
and software developers worked together to design a communicator that
addressed how and where people actually used their wireless devices. In
addition, rather than employ traditional focus groups, Handspring
employed an ethnographer who observed how people used both their cell
phones and PDAs in everyday situations such as while driving or riding
the subway.6 Such observations indicated that people preferred to use a
cell phone with one hand to avoid the distractions of juggling. With
Treo's thumb-touch QWERTY keyboard and the capability to look up
addresses and telephone numbers by typing initials, Handspring's
executives were confident that the Treo would set the company back on
course toward near-term profitability.

In December 2001, Dubinsky announced that the Visor line would be phased
out of production and that the company planned to achieve profitability
by its fiscal year end on June 30, 2002. Handspring would eventually
focus exclusively on the Treo platform of communicators, which in
contrast to the hardware-based Visor products allowed users to increase
functionality through additional software as opposed to bulky hardware
expansions (see Exhibit 2).

Exhibit 2

Handspring's Family of Organizers, Communicators, and Related Products

Visor™ Expandable Handheld Computers

The Visor model line featured both B&W and color screens, used
rechargeable or alkaline batteries, and ranged in list price from $169
to $229. This was Handspring's original product offering.

Springboard™ modules transformed the Visor into a digital camera,
wireless Web device, MP3 player, and more.

Handspring offered more than 70 different modules. Some modules were
included free with the purchase of a Visor handheld, whereas other
modules had a list price in excess of $400.

Treo™ 90 Handheld Computer Organizer

The Treo 90 featured a color screen, rechargeable battery, QWERTY
keyboard, and SD/MMC expansion capabilities. It listed for $299.

Treo™ communicators were combination phone, messaging, data organizer,
and Web access devices

The original Treo 180 listed for $399, and the improved Treo 270
—offering global telephone coverage and released in 2002—listed for
$499. The Sprint PCS Treo 300—the result of a highly collaborative
partnership and scheduled for release in late 2002—was to run on
Sprint PCS's nationwide 3G data network. The Treo 300 was listed at $449
after mail-in rebate.

Software and Accessories (Cases, Cables, Cradles, Keyboards, etc.) for
Visor and Treo Products

A variety of accessories and additional software were available from
Handspring and other third-party providers. Accessories for Handspring's
family of products ranged in price from $10.00 to $50.00 and were model
specific. The Treo e-mail annual subscription ranged in price from
$49.99 to $99.99.



Source: Company document, www.handspring.com/products/treo/photos.html.

Handspring's Competitors

Because Handspring continued to serve the traditional PDA market while
refocusing its strategy on becoming a leading provider of communicators,
the company faced competition from a variety of providers. The
competition between PDAs and smart phones continued to fuel the
convergence of these two traditionally separate markets. Industry
analysts expected PDA sales after 2004 to be strongly affected by smart
phones.7 A Strand Consulting report stated that Palm and Handspring
would have difficulty surviving in the smart phone market because they
lacked experience in the mobile phone market and were faced with strong
competition. Some analysts believed that Microsoft's 2.5G Smart Phone
platform would succeed because of the company's strong customer base.8
Nokia, Sony, Ericsson, Siemens, and Motorola had more financial strength
to compete in the market for smart phones and smart handheld devices.9
Traditional PDA providers such as Palm, Sharp, and Sony competed most
directly with Handspring's Visor product line, while software and cell
phone giants such as Microsoft and Nokia were concentrating their
resources on combining the capabilities of wireless and handheld
computing into their own versions of communicators that would compete
for market share alongside Handspring's Treo products.

PALM 1705

Palm was still the undisputed market share leader in the PDA market.
However, the company had been under fire by competitors for several
years and was clearly in the crosshairs of Microsoft and its Pocket PC
operating system. Palm's current competitive advantage was its operating
system, which was licensed to manv PDA makers. The Palm i705 w=> -he
u?;r; ;e from the Palm Mix. The i/05 provi

battery life and a color screen, and it had only 8MB of memory. Although
the PsAn i705 «U

not have cellular capability, it had "always-on" access to e-mail. This
feature notified the user by a blink, beep, or vibration when there was
new e-mail and had a very comprehensive support system that was second
to none.

SHARP ZAURUS SL-500

Sharp was not a major player in the PDA market, but it was making some
changes to its product in order to gain recognition and market share.
The Zaurus SL-500 offered a hidden thumb keyboard as well as built-in
handwriting-recognition software. Perhaps most noteworthy, the Sharp PDA
was operating on a Linux operating system, which was getting some
attention from software developers. The Zaurus also had a wide range of
accessories, 64MB of RAM, and an Intel processor. Although Sharp had
taken a big step forward, there were still some bugs that needed to be
worked out to simplify software installation and Outlook access before
it became a force in the current market.

SONY CLIE PEG-N760C

Sony had one of the best products in the PDA market. Its long-term
commitment to R&D and

innovation made it a market leader in almost every industry in which it
competed. Although

it was more expensive than other Palm OS devices, the CLIE offered a
65,334-color i

screen along with MP3 audio capability, easy-to-use controls, remote
control headphones,)

picture/video viewing software. With some changes in its price and knpr

Sony had the potential to utilize its deep pockets and strong product
devdofmeatt

to either enter into the cellular PDA market or work with a phone
producer •• 4

market.

COMPAQ iPAQ 3835

The iPaq was one of the newest products in the PDA market. With a color
screen, 64MB of RAM, the Pocket PC 2002 operating system, and
improvements to iPaq's memory card and speakers, Compaq was positioned
to increase its market share. Compaq's only setback at this time was the
price of its PDA. At $699, the iPaq was more expensive than its
competitors' products. With the merger of HP and Compaq, the market for
the iPaq had the potential to increase through the combined efforts of
these two leaders in personal computing.

RIM/BLACKBERRY 957

With more solid financial backing, Blackberry should become a force in
the market. The Blackberry 957 had PDA and phone capabilities, with a
battery that lasted up to 80 hours. Blackberry was the first to develop
the thumb keyboards and was widely preferred by its users. Compatible
with applications such as Outlook and corporate networks, Blackberry had
more than 13,000 companies using its product. Although the Blackberry
957 could not receive attachments via e-mail, the system was always
ready to receive mail. Even with a price tag of $499, Blackberry was
struggling to improve its financial performance.

SAMSUNG SPH-M330

The Samsung PDA was positioned to compete directly with the Handspring
Treo, BUiUtniT, and Kyocera models. The SPH-M330 had a color screen,
support for an external camera, and

cellular capability, and it ran on the Palm OS. The device also used
gpsOne, a service that

could display a map of the user's location and immediate vicinity on the
LCD screen. Samsung was to launch the product through Sprint PCS but
still lacked the brand recognition of Handspring and the other
market-share leaders.

KYOCERA SMARTPHONE QCP 6035

Kyocera was Japan's version of the smart phone. The PDA portion of the
device ran on nW Palm OS and was compatible with most third-party
applications. Kyocera was new to the ILS. market but would likely thrive
hi the Japanese market, which was usually protected by strict

tariffs and import regulations.

NOKIA 9290 COMMUNICATOR

The Nokia 9290 Communicator was released into the U.S. market in 2002.
It ran on the Symbian operating system and offered a full-color screen.
The 9290 was capable of sending and receiving images, sound, and video
clips. The handheld combined phone, fax, e-mail, calendar, and Internet
capabilities as well as support for PC applications such as Microsoft
Word, Excel, and PowerPoint. It was marketed as "the one device that
does it all" and listed for $599.

MICROSOFT POCKET PC PHONE EDITION

Microsoft was focused on the enterprise/corporate users who used
products that were compatible with the operating systems and software
controlled by Microsoft. It was more profitable to sell and support
5,000 Pocket PCs to one business than to 5,000 consumers. Microsoft's
deep pockets and R&D capability posed the largest threat to reposition
the PDA/phone market share. Although the product did not possess the
capabilities of the Treo, Microsoft had just entered this market. The
current device provided access to Outlook, e-mail

Handspring's Strategy for the Treo Communicators

In the seemingly overcrowded market for traditional PDAs, Handspring was
committed to setting itself apart from the competition with the
introduction of the Treo line of communicators. In pursuit of this
objective, Handspring was seeking to reach beyond the consumer market
and become a force in the corporate wireless market. Corporate customers
using the Treo would be able to access e-mail and more sophisticated
corporate data through the Wireless Business Engine, or they could opt
for the try-then-buy desktop software. Handspring was marketing this new
product as "several digital products all in one tiny package".

Management viewed the Treo as: Treo = Phone + Organizer + E-mail + Web

The company had recently formed the Enterprise Alliance Partnership
(EAP) Program to assist in its objective of bringing communications
solutions and wireless handheld devices to corporations. Handspring
planned to maximize its existing relationships with retailers,
enterprise-focused resellers, corporate systems integrators, and
wireless service providers to branch out toward a broader set of
corporate clients. A primary example of the company's commitment to the
EAP Program was its highly collaborative experience in developing the
Sprint PCS Treo 300. The Treo 300, scheduled for release in fall 2002,
was designed exclusively for Sprint's nationwide 3G data network.
According to Handspring COO Colligan, "By working with the best
integrators and back-end software providers in the industry, we can
leverage each other's experience to give corporate customers exactly
what they want."10

Handspring was also committed to increasing its marketing and
distribution channels through similar partnership arrangements. On
December 17,2001, Handspring announced a strategic marketing and sales
partnership with Neomar, a leading developer of wireless enterprise
software solutions. The companies intended to work together on product
evaluation, testing, and training. They would also combine sales and
marketing efforts for Handspring's Visor and Treo product lines with
Neomar's mobile infrastructure software for corporate customers.11 Other
strategic partnerships included Wireless Knowledge, Inc. (a subsidiary
of QUALCOMM, Inc.), Visto Corporation, Aether Systems, AvantGo, Extended
Systems, and Synchrologic.



HOW IMPORTANT IS THE MICROSOFT OS According to Neil Ward-Dutton of Ovum,
most consumers of PDAs were business users who were reimbursed by their
companies. The general consumer market was not yet developed. This gave
Microsoft and companies using the Microsoft operating system an
advantage over Handspring's use of the Palm operating system. Company IT
departments preferred products that used the same operating system as
the company computer systems.12 The Microsoft Pocket PC ran versions of
Word and Excel. Other people contended that compatibility with the
desktop was more important than compatibility with back-end
applications.13 In a 2001 interview with Business 2.0, Jeff Hawkins
claimed that he did not believe the operating system was nearly as
important to handhelds as it was to PCs. When asked if he had made a
decision to use another operating system in lieu of continuing to
license Palm's technology, Hawkins responded, "Long term, if Handspring
grows as large as I think it will be ... it is almost certain that we
will have products that do not run on Palm. But that is not a product
announcement."14

ENSURING PROFITABILITY PROJECTIONS ON THE BASIS OFTREO'S INITIAL SUCCESS

In the midst of Handsprings attempts to refocus its strategy on the
communicator market, the young company was still stmg^ng to achieve
profitability. It had had a net loss every year since its inception.15
While its sales were increasing, net profit was decreasing. Worldwide,
the market for PDAs was increasing. According to Gartner Dataquest, the
number of PDAs shipped increased 18% from 2001 to 2002.16 Handsprings
net profit, however, decreased as a result of downward pricing pressures
from an increasing number of competitors. Gross margins fell from 31% to
9% during fiscal year 2001. Although Handspring received an additional
$57 million in funding in January 2002, Dubinsky knew that the
shareholders were expecting profitability in the near future.

Dubinsky was reviewing her comments from the company's quarterly and
fiscal year end conference call for June 30, 2002. During the conference
call, Handspring announced that Hawkins had recently formed the
nonprofit Redwood Neuroscience Institute to pursue his lifelong passion
for brain research. He would be splitting his time between the institute
and serving as Handspring's Chief Product Officer and Chairman of the
Board of Directors. Now that Hawkins was no longer 100% focused on
Handspring, Dubinsky wanted to assure shareholders that the company
would continue to successfully execute on its plans for the Treo
communicators in both the near and long terms.

When Handspring unveiled its plans to transition to a communicator-based
company, Dubinsky also predicted profitability by mid-2002. However,
consumers were still taking a wait-and-see approach and looking for a
compelling technological breakthrough to convince them that an upgrade
to a communicator was warranted. Consumer reluctance combined with an
economic slowdown prevented the company from achieving its fiscal year
end profitability as predicted.

Although profitability objectives were still unmet, Dubinskv reported
that the Treo being well received in the marketplace, with more than
93,000 units shipped to date. The" product line had significantly
improved margins from 9.2% to 24.5% over the prior fiscal i end. Unlike
the Visor product line, the Treo products were not experiencing any
pricing pressure from competing products. Telecommunications service
providers were reportedly very happy with the Treo line, and studies
indicated that Treo users represented a 20% to 90% increase in average
revenue per user over traditional cell phone users.

Handspring remained confident that its new line of Treo communicators
would succeed in the marketplace and revised its outlook by stating that
the company intended to achieve profitability by the second quarter,
ending December 30, 2002. Dubinsky needed to decide how Handspring could
best realize this goal and considered the following approaches to ensure
that the company's profitability objectives were met:

1. Accelerate the company's plan to phase out of the Visor product line
and concentrate all of Handspring's resources on the development and
marketing of the Treo communicators through increased alliances with
telecommunications service providers.

2. Dedicate resources to a costly marketing and advertising campaign to
increase awareness of communicators rather than rely on the early
adopters of the new Treo products to educate other consumers.

3. Focus resources on developing an operating system to compete with
products offered by Palm, Microsoft, and Symbian.



Financial Performance

Please answer the following questions.

Strategic Alternatives and Recommended

A. Strategic Alternatives

1. Can the current or revised objectives be met by the simple, more
careful implementing of those strategies presently in use (for example,
fine-tuning the strategies)?

2. What are the major feasible alternative strategies available to this
corporation? What are the pros and cons of each? Can corporate scenarios
be developed and agreed upon? (Alternatives must fit societal
environment, industry, and company for next 3-5 years.)

a) Consider cost leadership and differentiation as business strategies.

b) Consider stability, growth, and retrenchment as corporate
strategies.

c) Consider any functional strategic alternatives that might be needed
for reinforcement of an important corporate or business strategic
alternative.

B. Recommended Strategy

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2

2

о

„@

^„@

„Ґ

^„Ґ

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d

1 . Specify which of the strategic alternatives you are recommending for
the corporate, business, and functional levels of the corporation. Do
you recommend different business or functional strategies for different
units of the corporation?

2. Justify your recommendation in terms of its ability to resolve both
long- and short-term problems and effectively deal with the strategic
factors.

3. What policies should be developed or revised to guide effective
implementation?

4. What is the impact of recommended strategy on the company's core and
distinctive competencies?