Whither Handspring?

Handspring, the maker of my beloved Treo 300, appears to be on the verge of financial ruin in the not-so-distant future. What does this mean for companies in adjacent market spaces?

As of Handspring’s latest 10-Q (quarter ending December 2002), the company had “real cash” (cash and short-term cash equivalents) of $65 million and a quarterly net burn of $12 million. When you add in the fact that the company has a large real estate obligation of $61 million (total charge, including non-cash writeoffs will be $75-80 million) that will be paid largely out of restricted and current cash in the very near future. Looking at that picture, I would say that Handspring has about 4-5 quarters of life before the situation gets hopeless. I also can’t imagine that Sprint is going to swallow the entire $200 rebate that is now on the table for new Treo 300 customers who sign up for service plans.

What would it mean if Handspring were to go out of business? Handspring’s demise could have some interesting consequences for a number of companies in the high tech ecosystem:

PalmSource – PalmSource, the entity responsible for the Palm OS, would lose one of its larger licensing customers. In a time where the Palm OS is locked in a pretty bloody battle with Pocket PC, losing a large licensing partner has negative consequences both in terms of licensing and market share.
Visto – Visto is a private company in the Bay Area that has developed a software solution to allow enterprises and individuals to wirelessly receive email and calendar information. Visto is both closely aligned with Handspring (you can sign up for the Visto service via the Handspring website) and relies on companies such as Handspring to give them access to platforms where they can compete (I consider the RIM device to be a closed platform from a competitive standpoint).
Good Technology
– Good, another company valiantly fighting to help enterprises have more flexibility when it comes time to move to wireless data access. However, without reliable access to open platforms (see my comment above), Good faces a tougher road in getting its product adopted.
Research in Motion – I am not sure what other Treo-toting users will do in the event that Handspring goes out of business. Will they continue to carry an unsupported device? Or, will they move to another platform such as the Tungsten W or RIM PDA/Phone? Handspring’s demise is unambiguously not negative for RIM.
Sprint – Sprint is in an interesting situation. Handspring’s latest 10-Q states that 70% of their revenue comes from Treo sales and that Sprint is a “significat” channel. I am a Sprint subscriber and I have to say that Sprint does not offer much in the way of compelling data devices on its network. So, if Handspring does go away, what does Sprint offer its data/high-end customers who are not interested in the Samsung products?

This situation is interesting me for two main reasons. One, it is quite interesting to think about the ripple effects when a company at the heart of a technology ecosystem finds itself in trouble. Second, as a VC, it is interesting to dissect these “bet on a bet” type of investments that require the viability or participation of an open-minded company such as Handspring to make the company viable.