palmOne: Down, but Not Out?

Shares of handheld-computing and smartphone maker palmOne (Nasdaq: PLMO  ) are down by about 30% since its fiscal second-quarter earnings call on Dec. 16. Lowered revenue and earnings guidance for the third quarter prompted Merrill Lynch and Bear Sterns to downgrade their ratings of the company to "neutral" and "underperform," respectively. Lehman Brothers had downgraded to neutral on Dec. 15, the day before the call.

While palmOne management said the company would miss analysts' estimates for the third quarter, sales and earnings numbers for its full fiscal year ending May 31 are in line with analysts' expectations.

However, as pointed out here recently, what do analysts know? It's good to listen to the chattering classes and read the financial headlines to give you a frame of reference. More importantly, exercise your own due diligence and pay attention to the contrarian viewpoint, whether bullish or bearish.

So, to get you started on your homework, here's a quick roundup of what analysts are saying.

Analysts bearish on palmOne are worried about lowered third-quarter revenue and earnings numbers, and although management reaffirmed that the company would meet its full-year estimates, analysts aren't so sure. Sales of the Treo 650 smartphone, launched in October, are slower than expected because of delays in carrier certification. PalmOne's handheld segments, Zire and Tungsten, are in a flat-to-declining PDA market, and the shift in product mix to smartphones sounds like a risky one-product strategy, especially given intense competition from Research In Motion's (Nasdaq: RIMM  ) 7100 series of smartphones.

Bullish analysts, on the other hand, liked hearing CEO Todd Bradley talk at the Needham Growth Conference in New York on Jan. 12 about "maintaining palmOne's leadership position in the handheld-computing and smartphone space." Continuing to pick up global wireless partners, adding them to existing partners like Sprint (NYSE: FON  ) and Verizon (NYSE: VZ  ) , will be a key sales driver. And finally, palmOne has plans for a family of smartphones. Of those, Bradley says that an entry-level smartphone will "do for smartphones what Zire did for handhelds."

The bottom line: Take your time, do your research, and don't put too much emphasis on what most of the financial press has to say. Where the financial reporters are too often driven by speed, investors have the time -- and need to take the time -- to be both thorough and analytical.

As part of your investigation, check out these other takes on palmOne:

Fool contributor Chris Cather owns none of the shares mentioned and spends a silly amount of time on securities analysis as a hobbyist investor.


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