Palm's Sneak Attack

Investors punished smartphone maker Palm (Nasdaq: PALM  ) today, sending its shares down nearly 11%. But can you blame them?

I mean, until yesterday, no one expected Palm to report earnings until Dec. 18. Half the analysts following the stock were saying it was safe to hold, and two of these supposed experts were actually telling people to buy the stock, which most analysts thought would earn about $0.04 a share.

Yet pressure is mounting from Motorola (NYSE: MOT  ) . From Apple (Nasdaq: AAPL  ) , as its iPhone steals potential AT&T (NYSE: T  ) sales that could have gone to Palm. From Nokia (NYSE: NOK  ) -- now with in-house Navteq (NYSE: NVT  ) maps to make its Navigator and follow-on, GPS-armed phones even more attractive. And let's not forget Research In Motion (Nasdaq: RIMM  ) , making a march on Eastern Europe and stealing market share there. In short, Palm's competitive position has been deteriorating for months.

Yesterday's news may have been the final straw, as Palm confessed that "a product that the company had previously expected to have certified within the quarter" has not, in fact, been certified yet -- and importantly to both sales and earnings, not shipped to customers. Adding embarrassment to injury, Palm also cited an "unforeseen increase in warranty repair expenses" that cut deeply into its earnings for the quarter.

Maybe no one expected that Palm would report a $0.22-to-$0.24-per-share loss this month. But it seems to me that if Wall Street's finest had been doing their jobs right, they would have noticed things like products not getting certified anywhere near in time to ship this quarter. Their sales-channels checks might have detected the inordinate number of Palm phones "returned to sender" for repair -- and they might have surmised that the cost of making all these repairs would detract from Palm's Q2 profits.

In short, maybe no one predicted these problems. But certainly, someone should have.