Palm's stock has declined from a high of over $17 in October to just over $8.50 as of this morning. What's behind the halving of Palm's value? Well, tepid sales of its webOS smartphones are one factor. Its low stockpile of cash isn't helping either. Can the ailing company make it through the year without being absorbed by a competitor?
Palm's stock has declined from a high of over $17 in October to just over $8.50 as of this morning. What's behind the halving of Palm's value? Well, tepid sales of its webOS smartphones are one factor. Its low stockpile of cash isn't helping either. Can the ailing company make it through the year without being absorbed by a competitor?Let's rewind the clock one year. Palm announced webOS -- its fancy new smartphone operating system -- and the Palm Pre at CES 2009. Both were a big hit at the show, and showed promise for a company that almost bit the dust. It seemed that years of investing in itself and developing a new platform from the ground up might actually pay off. The Palm Pre went on sale exclusively from Sprint in early June. Sales were OK.
In September, Palm announced the Pixi, a second webOS device for Sprint. It went on sale in November. Sales of that device have been less than stellar. Just last month, Palm announced some minor updates to webOS (which include new features, such as video capture) and a new distribution agreement with Verizon Wireless. It commenced sales of the Pre Plus and Pixi Plus with Verizon in January. There haven't been any confirmed numbers as to how well Palm's devices are selling via Verizon.
Palm's most recent quarterly earnings weren't bad, and while the company appeared to sell a healthy number of devices, it didn't explicitly say how many Pres and Pixis it sold via Sprint.
Just this week, Bank of America/Merrill Lynch analyst Vivek Arya revised his position on Palm, however, and the outlook isn't so good. He doesn't believe Palm's stock will do any better than hover around the $10 mark. He also lowered sales estimates from 1.1 million in Palm's third quarter to 900,000, and from 1.5 million in Palm's fourth quarter to 1.2 million. In other words, he thinks the company is going to sell half a million fewer phones than he previously thought.
"Palm's superior platform features have not translated into sufficient carrier support and consumer demand, and we are concerned the window of opportunity may be closing as Google's Android ecosystem gains ground, RIM revitalizes its portfolio, iPhone increases its presence, and as Microsoft reboots its efforts with Windows Phone 7," Arya wrote in a research note. "With only $130 million of net cash in an opex intensive space, Palm's options may be limited in our view."
Wait, what? Palm has only $130 million in cash left? Can that be right? I have no idea what Palm's daily operational expenses are, but that seems like a *really* low number to me.
As Arya points out, the mobile space is capital expenditure intensive. Palm has to spend money to make money. In particular, Palm has to get some much better hardware to the market as quickly as possible. Its Pre, Pre Plus and Pixi and Pixi Plus may be decent devices, but they are not lighting the market on fire as Android devices such as the Droid and Hero have stepped up the competition.
Palm needs cash. Sales equal cash. Palm needs to increase sales. In my opinion, it is only going to do that by getting better phones to market. I can't imagine that Elevation Partners and other investment organizations are going to continue to dump millions of dollars into Palm to extend its lifeline.
So the question remains: Can Palm survive 2010? I am growing increasingly doubtful.
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