09:14 AM

Palm's New CEO Faces Tough Challenges

Former Apple hardware chief Jon Rubinstein is viewed as a good choice to lead Palm back to the forefront of the mobile device market, but multiple challenges await him.

As Jon Rubinstein prepares to take the reins of Palm from Ed Colligan, analysts are optimistic about his ability to turn around the company that was once synonymous with handheld computing devices.

The market appeared to like the move, as Palm's stock price rose about 12% in the first full day after the move was made public. Rubinstein retired from Apple in 2005 as the head of its red-hot iPod division, and has spent the last two years with Palm developing its next operating system and the Pre smartphone.

The Pre launched June 6 and has broken Sprint sales records while receiving mainly positive reviews from the press. One of the most well-regarded features of the device is the WebOS operating system, which can aggregate multiple Web-based services into a single finger-friendly user interface.

"The timing was certainly awkward, coming just four days after the launch of the Pre," said Thomas Weisel Partners analyst Matthew Sheerin about the leadership change, in a note to investors. "Our take is that Rubinstein was being groomed for the last two years to run the company, and is ready for the next challenge, having put together a solid engineering team."

Palm faces multiple challenges though, as the smartphone space is lined with deep-pocketed companies such as Apple, Google, Microsoft, and Nokia. Palm has reported seven consecutive quarterly losses, and it has been kept afloat over the last few years by more than $400 million from Elevation Partners, which owns about a third of the company.

Palm won't have to worry much about cash if it continues to develop good products like the Pre, said Gerry Purdy, chief analyst at Frost & Sullivan. Purdy said Rubinstein's experience in the consumer electronics world, as well as strong forecasts of growth in the smartphone market, means Palm should be able to differentiate from Nokia, Apple, and Research In Motion to carve out a decent amount of market share.

"I think he took this position to do something significant, and he's going to go for a home run," said Purdy. "He knows how to make great products, and I think the Pre is just the tip of the iceberg."

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