Ronnie05's Blog

Palm:The sinking feeling

Posted in Mobile Devices and Company Updates by Manas Ganguly on March 28, 2010

Palm is sinking… if stats had their way. However, the CEO and Chairman refuses to accept the facts on his face.

Palm is sinking and from the looks, it doesnot look like it has more than 12 months left to it. The “white knights” if any are few and far between. Palm reported quarterly revenue $350 million earnings with a net loss of $18.5 million; sending the stock on another nosedive to around $4.These results are after adopting the new accounting rules that let certain companies accelerate revenue recognition.

The Palm share price has eroded by 75% in an year. A sad statistic of how the smartphone maker is gasping for oxygen and life.

One reason for Apple’s bang-up last quarter was the accounting rules change. All it did for Palm was to keep things from looking even more dismal. The cash-on-hand picture will only get worse.Out of the 960,000 units that Palm moved into distribution, only 408,000 actually sold through to customers.

The biggest issue that puts them in play right now is the cash burn-rate of the company and their current valuation; the market cap is around $667 million. Sales are expected to plummet next quarter as carriers work off excess inventory and while the company has a $600 million cash cushion, this is likely to vaporize quickly as sales dry up.The company is expecting less than $150 million in sales this quarter; a huge drop from the $349 million in the prior quarter. This is mostly related to the excess inventory that the carriers are holding, but this is scant relief, because the whole problem is end demand and no reduction in inventories is going to fix that. The other issue weighing on their cash balance is their huge accounts payable balance of $190 million (almost 2x its receivables), which will also burn through a lot of cash this quarter

The next quarter revenue estimate is expected to be lesser than $150 million.

Whats more worse than a sinking ship? To complicate matters further for the beleaguered Palm, its management doesnot seem to see the obvious. Heres what Jon Rubinstein had to say about Palm’s problems at hand:

“Our recent underperformance has been very disappointing, but the potential for Palm remains strong.The work we’re doing to improve sales is having an impact, we’re making great progress on future products, and we’re looking forward to upcoming launches with new carrier partners. Most importantly, we have built a unique and highly differentiated platform in webOS, which will provide us with a considerable – and growing – advantage as we move forward.”

The announcement of Palm and Pre for AT&T is a positive, but with competition from Nexus One and iPhone 4G, one would be cautious about nets on Palm and Pre. WebOS was supposed to be a silver bullet, but it isn’t, because consumers simply don’t want to buy Palm’s products. Current products have been eclipsed in hardware terms and new competitor hardware is on the horizon. No amount of marketing is going to make the products sell well against the coming competition.

The recovery from a crisis begins with the identification of the problem and there-after the solution. The way it looks for Palm, they have not yet defined their problem in the first place. Forget looking for solutions.

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