No Deal for Palm

It's no secret that I'm among the Palm (Nasdaq: PALM  ) watchers who wonder if shareholders wouldn't be better suited by a sale of the company. Well, all us party poopers can forget it, says CEO Ed Colligan.

Yesterday, he told reporters attending a news conference at the Digital Life trade show in New York that while his company's well-known brand name and enviable cash position could be attractive to a suitor, his team is "not out pursuing [a deal]."

OK, Ed. I'll admit that you and your team have earned every chance to prove that Palm can go it alone successfully, especially since you own a little more than 1% of the company, according to SEC filings.

And your new Treo 680 seems like a winner in that it adds some of the edgy features that distinguish the Treo 750 for Europe, such as automated text messages to help soothe those whose calls go ignored. Geekery like that may help to convince carriers such as Sprint Nextel (NYSE: S  ) and Vodafone (NYSE: VOD  ) to push more of your smartphones in their stores. (Palm is aiming for global distribution of its products through 20 carriers by the end of its fiscal year next June.)

Meanwhile, your main rival, Research In Motion (Nasdaq: RIMM  ) , looks remarkably overvalued and vulnerable, thanks to a lack of a clear competitive advantage. That leaves Nokia (NYSE: NOK  ) as the biggest threat to your success, because of its market dominance. (Estimates say that Nokia's Symbian-powered smartphones own 42% of the global market.)

But the progress you seek won't come unless you get more efficient with the business. So, Ed, here's a three-point plan for keeping snarky investors like me off your back:

  • Keep improving returns on capital. Return on capital has risen from 0.7% to 9.6% over the past two-and-a-half fiscal years. Bravo. Still, 9.6% probably isn't much more than your cost of capital. And it's well below what RIM delivers; 19.3% over the trailing 12 months, according to Capital IQ.
  • Widen the carrier network. This one is simple, Ed. You say you'll have 20 carriers selling the Treo globally by the end of June. Get it done.
  • Tighten up the supply chain. As great as it is that Palm has boosted sales by an average of 23.7% over each of the last three years, that mark pales next to better than 29% average gains in accounts receivable and inventory over the same period. This spread is dangerous in that it could foreshadow a massive writedown in inventory. How about reversing the trend this fiscal year?

And that's it. Do all that, Ed, and not only will I stop complaining, I'll eat crow publicly right here, in these digital pages. See you next June.

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Fool contributorTim Beyersstill owns a Treo 600, which he beats up every day. Tim owns shares in Nokia. Get the skinny on all the stocks he owns by checking Tim's Foolprofile. Vodafone Group is a Motley Fool Inside Value pick.The Motley Fool'sdisclosure policyis never on hold.


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