Palm Will Burn Your Portfolio

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Palm (Nasdaq: PALM  ) is the worst stock in the world. Own it, and it'll burn you. Why? One word: iPhone. And one more: BlackBerry. And Nokia. And ... well, you get the picture. Once a star, Palm has become the smartphone industry equivalent of an out-of-work actor.

Accordingly, many in our 110,000-person-strong Motley Fool CAPS investing community have abandoned their belief in the stock as an outperformer:

Metric

Palm

CAPS stars (5 max)

*

Total ratings

764

Bullish ratings

454

Percent Bulls

59.4%

Bearish ratings

310

Percent Bears

40.6%

Bullish pitches

98

Bearish pitches

74

Note: data current as of July 29, 2008.

"I own and love my Centro. I'm not convinced of the long-term prospects of the Palm OS though," wrote CAPS investor ZenLunatic99 in a pitch from earlier this month. "I've had three units over the last 5 years and they all operate in a strikingly similar manner. No pizazz."

Palm, in other words, has lost its mojo. And unlike in Austin Powers: The Spy Who Shagged Me, there's no Dr. Evil from whom to win it back. Apple (Nasdaq: AAPL  ) , Research In Motion (Nasdaq: RIMM  ) , and Nokia (NYSE: NOK  ) long ago made off with whatever it was that had made Palm and its Treo special.

Researcher Canalys reports that, in the fourth quarter, Palm OS devices trailed the iPhone, the BlackBerry, and devices based on Microsoft's (Nasdaq: MSFT  ) Windows Mobile in terms of North American market share. (The irony? Palm licenses Windows Mobile for some of its smartphones.)

Globally, Palm is a bit player like Motorola (NYSE: MOT  ) and Sony Ericsson, a joint venture between Japan's Sony and Sweden's LM Ericsson (Nasdaq: ERIC  ) :

Vendor

Q1 2008

Market Share

Q1 2007

Market Share

Change*

Nokia

45.2%

46.7%

(1.5)

Research In Motion

13.4%

8.3%

5.1

Apple

5.3%

0.0%

5.3

Sharp

4.1%

7.0%

(2.9)

Fujitsu

4.1%

5.0%

(0.9)

Others

29.9%

33.0%

(3.1)

Source: Gartner. Market share is reported for smartphones.
*In percentage points.

But the numbers would get worse. In June, Palm reported a 26% decline in second-quarter revenue and a $0.40-per-share net loss. Contrast that with Apple's results, which included $419 million in iPhone revenue -- 41% more than the $296 million Palm had earned.

Where have all the geniuses gone?
I blame the brain drain; Palm doesn't attract the industry's top talent the way it used to. Sure, smart people work at Palm. Some are undoubtedly geniuses. But the man most credited with the breakthroughs that have led to today's smartphones -- Jeff Hawkins -- no longer runs product development. His official Palm bio says he's the company's founder and "Member of Executive Team," whatever that means.

Hawkins has been a part-timer since at least early 2007. We can't know whether his half-hearted commitment was in any way responsible for the disaster that was the Foleo. What we do know is Foleo cost Palm time and investors money. So much money that Bono and his investing mates swept in to rescue the company, as if it were the subject of some sort of save-the-rainforest concert.

To be fair, Palm has added fresh blood in recent years: Executive chairman Jon Rubinstein and senior vice president of product design Mike Bell are both from Apple. Yet the numbers say they'll need at least a Treo-sized home run to turn the company around. Centro, good though it may be, at $99 doesn't have the pricing power to fill Palm's coffers.

Finally, there's management: Palm CEO Ed Colligan, a long-termer who appears to be genuinely passionate about the business, has a poor track record for encouraging innovation.

Worst. Stock. Ever?
Which brings us back to the beginning; with well-funded competition, poor financials, and borderline management, Palm is the worst stock in this burn contest and perhaps in the world -- the sort that will make your portfolio bleed red.

But that's my take. What's yours? Think Palm is heading further south? Click here and rate the stock "underperform" in Motley Fool CAPS. We'll tally your votes in the days ahead and then reveal your choice for the worst of the worst.

Apple is a Motley Fool Stock Advisor stock selection. Microsoft is an Inside Value pick

Fool.com contributor Tim Beyers owned shares of Nokia at the time of publication. He seeks the best of the tech as a member of the Motley Fool Rule Breakers team. Get a daily dose of Tim's Foolish musings via this feed for your RSS reader. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2008, at 5:20 PM, akm725 wrote:

    Tim,

    Perhaps you should do a little more research before writing your articles. Palm as released 2 of the 3 most innovative mobile devices (Pilot, Treo, iPhone-course this is Apples) ever created. Palm doesn’t have to “beat” Apple or RIM in order to succeed. The Smartphone busiest is an extremely small part of the mobile phone busiest and there is only room to grow. Palm has said several times their new “System Software” will be finished sometime this year or early next year. I think you should have a little more faith in a company that crushed the mighty Microsoft before in the PDA business and created the benchmark Smartphone for others to copy with the Treo 600 several years ago. I have a feeling you’ll be costing your readers tons of money by shying about from Palm’s stock win its currently on “Sale” :)

  • Report this Comment On July 30, 2008, at 5:21 PM, akm725 wrote:

    sorry...typos before.

    Tim,

    Perhaps you should do a little more research before writing your articles. Palm as released 2 of the 3 most innovative mobile devices (Pilot, Treo, iPhone-course this is Apples) ever created. Palm doesn’t have to “beat” Apple or RIM in order to succeed. The Smartphone business is an extremely small part of the mobile phone business and there is only room to grow. Palm has said several times their new “System Software” will be finished sometime this year or early next year. I think you should have a little more faith in a company that crushed the mighty Microsoft before in the PDA business and created the benchmark Smartphone for others to copy with the Treo 600 several years ago. I have a feeling you’ll be costing your readers tons of money by shying about from Palm’s stock win its currently on “Sale” :)

  • Report this Comment On July 30, 2008, at 6:43 PM, achiodi3 wrote:

    I know that you are just looking at the numbers, but look back about 10-15 years ago when Apple was in a some trouble. They have been called "The Greatest Second Act in the History of Business." And all it took was a little music player, and arguably not even the best one out there. But it was marketed amazingly. Palm may be down but their devices are by no means scarce. But even with a great device, they will need to hit the market just right. Who knows how people will react to it? I think that the people were not ready for the Foleo when it was unveiled but a year later devices like the MacBook Air (again, great marketing and ads) and FireFly are popular with a certain segment.

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