Another Buyback in Palm's Hand

Once again, phone and PDA maker Palm (Nasdaq: PALM  ) , a Motley Fool Stock Advisor selection, is buying back its former property.

Last time, in May of 2005, management purchased the right to use the name "Palm" for $30 million. This time, executives are ready to pay $44 million for a permanent license to use the Palm Garnet handheld operating system it created more than a decade ago.

To some, this deal may seem like wasteful spending. Not me. Palm has more than $520 million in cash; $44 million is a pittance, especially since the smartphone maker refuses to pay a dividend.

Meanwhile, the one-time fee gives Palm unlimited access to the OS and its source code forever. And Palm retains the rights to all improvements made to Garnet -- that's almost a Ryan Howard-sized bargain.

Palm badly needs innovation in its devices. Good design can only provide so much; the rest has to be software-driven. Yet Palm had all but given up on that side of its business late last year with the sale of PalmSource to Japan's ACCESS Systems for $270 million. And today, Treo smartphones are increasingly running Windows Mobile.

But that could change. Palm founder Jeff Hawkins is rumored to be working on a new category of mobile device that eclipses even the Treo. New software is undoubtedly a critical part of the effort. Want to bet that it won't be running the Garnet OS on Hawkins' experimental device? I wouldn't.

Palm's recent errors are almost too numerous to list. But this doesn't rank with its failures in Europe or its botched Q2 guidance. Just the opposite -- by winning back the right to develop new features for its pioneering OS, Palm finally has a chance to stir the industry as it has twice before: with the Pilot and the Treo. For investors' sake, I hope the wait for the next breakthrough isn't too long.

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Palm is a Motley Fool Stock Advisor selection. Ask for us anall-access passand you'll get a backstage look at all of the stocks that are helping David and Tom Gardner beat the S&P 500 by nearly 43% as of this writing. It's free for 30 days. All you have to lose is the prospect of a richer portfolio.

Fool contributorTim Beyers, ranked 1,251 out of 17,042 inMotley Fool CAPS, still owns a Treo 600, which he beats up every day. Get the skinny on all the stocks he owns by checking Tim's Foolprofile. The Motley Fool'sdisclosure policyis never on hold.


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