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Is Palm Just Too Late to the Game?

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For of all sad words of tongue or pen,
The saddest are these: "It might have been!"
 -- John Greenleaf Whittier

I wonder if an exec at Palm (Nasdaq: PALM  ) has had those "sad words" cross his mind in recent months, as his company has delivered two quarters of uninspiring results in the wake of the launch of the Palm Pre and its younger sibling, the Pixi.

The Pre, as you might recall, was meant to restore Palm's status as a big player in the smartphone wars -- a status that had fallen apart as the company's Treo line of Palm OS and Windows Mobile smartphones was battered by competition from Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) in its core North American market. And for a little while, as the Pre received great reviews thanks to its innovative webOS operating system (and was given a much-hyped release by Sprint Nextel (NYSE: S  ) ), it looked like that just might happen.

But after Palm's latest earnings report, you have to wonder if Palm and webOS are doomed to remain in also-ran status. Adjusted earnings came in at a loss of $0.37 per share ($0.05 worse than expected), and while revenues and unit shipments came ahead of estimates, that was only because of a massive inventory buildup of Palm phones by carriers. Palm's sell-through (i.e., the number of phones actually purchased by consumers) was a mere 573,000 units -- a full 210,000 below its unit shipments. And as a BMO Capital Markets analyst noted, with 20% of sell-through involved non-webOS products, the inventory build for the Pre and Pixi is likely even worse than that gap.

I think some of the weaker-than-expected demand can be chalked off to Palm's exclusive distribution agreement with Sprint, a carrier that's been bleeding market share for quite some time and has a weak competitive position in the corporate world. But the bigger issue, without a doubt, is the stranglehold that competing smartphone platforms have on the attention spans and wallets of consumers.

The iPhone's extraordinary success needs no explanation, nor does the cult-like following that BlackBerrys have among email and messaging addicts. And the ecosystems that Apple and RIM have built around their platforms -- in the iPhone's case, the App Store, and in the BlackBerry's case, its corporate IT support -- make it even harder for an outsider with limited resources to break in.

Now, Palm also has to deal with a major push from Google (Nasdaq: GOOG  ) and its Android platform, which has gained the support of Motorola (NYSE: MOT  ) , Samsung, and other smartphone also-rans. Android's momentum is especially troubling for Palm since one of the platform's key supporters, Verizon (NYSE: VZ  ) , is the carrier that Palm is counting on to give it a lift in 2010, after its exclusivity agreement with Sprint runs out. All things considered, Palm's "window of opportunity" to succeed may have already come and gone.

In the aftermath of Palm's earnings dud, estimates took a huge nosedive. The company's now expected to lose $0.75 per share in its May 2010 fiscal year, and post a profit of just $0.02 per share in the following year, as soaring sales and marketing expenses help offset revenue growth. Now more than ever, a marriage between Palm and Nokia (NYSE: NOK  ) , would make sound business sense. Palm's ability to succeed as an independent company is very much in question at this point, and Nokia, for its part, is steadily bleeding smartphone share to Apple and RIM (and maybe soon, the Android bunch).

Nokia, unlike Palm, does have the resources and brand power to reverse its smartphone fortunes. But as Palm's struggles show, this is a market where time is of the essence.

Eric Jhonsa has no position in any of the companies mentioned. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Nokia and Sprint Nextel are Motley Fool Inside Value selections. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (0)

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 December 22, 2009, at 3:42 PM, Fool wrote:

    Can Motley Fool publish something someday without attaqcking Sprint! Is shooting Sprint down your major project or you have other things to do?

    We do not support and like your attitide regarding Sprint since it has no scientific VALUE.

    Best regards,

  • Report this Comment On December 22, 2009, at 3:54 PM, Fool wrote:

    I've never come across a site that has a short position come across their articles as these fools!!!

  • Report this Comment On December 22, 2009, at 5:32 PM, marv08 wrote:

    Well, Palm was almost dead and they lost too much time trying different OS paths and nonsensical hardware. Based on that, the WebOS was a remarkable achievement. They had no chance to launch on a bigger carrier, as they could not even produce enough units to give Sprint sufficient stock in the beginning. Launching on AT&T or Verizon would likely have killed them. The Pre had a significant return/failure rate (still has: every owner I know went through at least three devices until now) - a bigger launch partner would have made it even worse. I really think they made the best out of what they had to offer. They simply can't compete with Apple, RIMM or Google, they have to build on their niche... the real question is, if they have a product pipeline that will make that possible. The Pre is yesterdays news, the Pixi has too many limitations to compete with the big guys. They need new products and they should come out months before Apple launches the fourth generation iPhone in Summer (and not again the very same week). Then they might have a chance to improve.

  • Report this Comment On December 23, 2009, at 1:43 AM, chaz572 wrote:

    PALM tying up with NOK? What's in it for NOK? Nokia doesn't need another platform -- the N900 is as solid a phone platform as the Droid, and far more featureful. It's just the latest in a long line of good smartphone hardware from Nokia. And Nokia doesn't need another OS -- Nokia is already well-versed in running Linux (the kernel of Android) on their smartphones. The N900 comes with a Linux stack that isn't too different from Android, and Nokia could likely make it run Android with minimal effort. I honestly don't see what a Palm-Nokia marriage offers Nokia but platform incompatibilities and integration headaches, and wasted money and effort. I foresee PALM a perennial bridesmaid, slowly drowning in its own debt.

  • Report this Comment On December 23, 2009, at 3:36 AM, justinvacca wrote:

    I had a palm pre and loved it but after 2 failing devices, yes a dead touch screen and my speaker not working (reg headset speaker) where i can only hear when on speaker phone i jumped ship and went to the hero, which is an amazing phone i miss the webos and its ease as well as a real keyboard but my issues with construction (slider getting loser everyday as well as having the phone replaced on issues above) i had to leave and ive been a long time palm supporter even before they got into cell phones i had a PTA, either way Palm let me down and im not sure they deserve to stay alive, ive been burnt and shouldnt have to deal with that, although sprint is cheap as hell and i deal with alot to keep my bill low, btw how are they still in business?

  • Report this Comment On December 23, 2009, at 3:38 AM, justinvacca wrote:

    PTA = PDA oops its 1:36 give me a break, but really though palm let me down i hope android will keep striving foward which is the main reason i moved over then again i still have 1.5 which is gay, no offense, i mean gay as in LAME

  • Report this Comment On December 23, 2009, at 2:04 PM, foolexaminer wrote:

    Despite the heavy competition, the Palm Pre smartphone has managed to stay in the race. One of the Palm Pre's strengths was it's free audible turn-by-turn GPS navigation software but now Droid uses Google's new turn-by-turn navigation software.

    However, this still leaves Palm Pre with the best multitasking app operating system across all of today's smartphones. iPhone has fallen behind with regard to true multitasking.

    As long as Palm can continue to enhance the device with better and faster hardware, it's never too late for Palm. Palm Pre Plus that will be sold under Verizon in the next several weeks may just be that device that will convince more hard core consumers to buy Palm smartphones.

    Palm is doing all the right things so far. They've released a more affordable and lower-end webOS smartphone the Palm Pixi to cover one side of the consumer spectrum, and now higher end models of the Palm webOS smartphones. The Palm App Catalog has jumped more than 400% in the past several months. If they continuing to reinforce heavy marketing through all media outlets while facilitating new tools for 3rd party Palm developers, they'll soon be neck to neck with their competitors.

  • Report this Comment On December 28, 2009, at 2:10 AM, HellcatM wrote:

    Hopefully the Pre going on Verizon will help them. If not then hopefully someone will buy them or if they're smart they'll just license out the OS to other handheld companies. Other companies like HTC or LG would probably love to have an OS that they don't have to skin the hell out of.

    I hear Nokia is interested in them but I don't see how they'd juggle 3 OS' unless WebOS will be their US OS while the other 2 will be their EU OS'? I guess its a way to get a better footing into the US market.

    I could see Google buying them and them since WebOS and Android are both Linux and incorporating the two OS' together. Or I can see MS buying them so they can copy the OS in their own code and not get sued. Qualcomm could buy them, that may be a good deal. RIM could buy them if they could incorporate their Blackberry messenger and mail into the WebOS code. Panasonic could buy them, but they just bought Sanyo for their batteries. Palm would have been good in the NEC, Casio, Hitachi merger, but they make their phones for the Asian market.

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