To: Ed Colligan, CEO, Palm (NASDAQ:PALM)

From: Tim Beyers, The Motley Fool

I'm writing to ask you to step down.

I don't say that easily, sir. Like many, I feel I owe you and your fellow Palm pioneers, Jeff Hawkins and Donna Dubinsky, a debt of gratitude. Together, you three made handheld computing a mass market. You also helped to create the smartphone market with the introduction of the Treo.

In short: your list of contributions is long, and your place in history is assured. Don't ruin that by overstaying your welcome.

Foiling Foleo
We've reach that point now. You cancelled the ill-fated Foleo last night, citing the need to focus on one user interface for all smart devices coming from Palm. Good idea.

Trouble is, now that we know the Foleo is a functionally different breed, you've shown that Palm suffers from a Marty Feldman-esque lack of focus. That, sir, is a failure of leadership for which you are responsible.

Please don't take that personally. My aim here isn't to scold. I just feel obligated to point out that Palm has been making mistakes for years. Since May 2005, when you became interim CEO after Todd Bradley left for Hewlett-Packard (NYSE:HPQ), Palm has:

And then, of course, there's the Foleo, which ultimately demonstrated your failure to understand customer demand. Firms that fail to understand customers never survive long.

Three strikes are all you get
You've come up short in other key benchmarks as well. Roughly one year ago, I put to screen three metrics for measuring the success of Palm. They were:

  • Higher returns on capital.
  • A broader carrier network.
  • A tighter, more efficient supply chain.

Let's tackle each metric, beginning with returns on capital from the quarter before my suggestions went live:

Fiscal Quarter

Return on Capital

First quarter

7.3%

Second quarter

5.9%

Third quarter

5.3%

Fourth quarter

5.4%

Source: Capital IQ, a division of Standard & Poor's

Not good.

And what happened to your promise to have 20 global carriers selling the Treo by June of 2007? I see no mention of that in the year-end press release. There's no mention of it in the 10-K, either. I do see in the 10-K that Sprint Nextel (NYSE:S), Verizon (NYSE:VZ), and AT&T (NYSE:T) collectively accounted for 56% of revenue in fiscal 2007, up from 55% in fiscal 2006, and 31% in fiscal 2005.

Finally, with respect to the supply chain, it's worth pointing out that inventory declined dramatically year over year in Q4. Alas, revenue also declined. That's not supply-chain efficiency; it's a clearance sale.

Let Bono provide some elevation
Palm needs a fresh start, and that's best achieved with a new CEO.

It's not as if executive changes aren't already under way. We know Mr. Hawkins, who has been working part-time in recent years, is very likely to give way to former iPod designer Jon Rubinstein.

We can thank Bono for that. Well, Bono and his compadres at private equity firm Elevation Partners, which in June pledged $325 million in capital for a 25% stake in Palm.

Surely they're motivated to earn an excellent return. And, like most venture capitalists, they're plugged into a broad network of experienced executives, many of whom would be qualified to lead Palm. Which means, sir, that the time is finally right for you to step aside.

Take the opportunity. Retire richly. Relax for a while. And then find your next gig. You, your company, and we investors will all be better off.

Foolish best wishes,
Tim

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Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool's disclosure policy usually answers after the second ring.