Watching Palm Crumble

With Palm (Nasdaq: PALM  ) shares down 13% in early trading after the company issued a bleak outlook, you'll probably see a lot of observers writing the company's eulogy. It'll probably read something like this:

Oh Palm, you were once a great of the smartphone world. We are indebted to you for bringing the Palm Pilot to the mainstream and furthering the spread of mobile devices. But your time has come. The sickness that formed with your years of weak Treo offerings couldn't be stemmed by a late dose of webOS. We'll always miss you, Palm.

Touching, but we didn't really need today's news to know that Palm was in serious trouble. The evidence had been building for months. Palm's stock had already been dropping for weeks on reports of weak sell-through at Verizon (NYSE: VZ  ) Wireless stores and reports that AT&T's (NYSE: T  ) interest in Palm's phones is "weak." Investors have long had clues that Palm's initial middling sales went beyond any weaknesses from partnering with Sprint Nextel (NYSE: S  ) to launch the phone; webOS has an awareness problem. Even if tech reviewers think it's great, people aren't buying it. That's the bottom line.

The fear resonating from Palm's CEO Jon Rubinstein saying, "driving broad consumer adoption of Palm products is taking longer than we anticipated" in today's statement is dead-on. The longer Palm flounders, the less incentive there is for carriers to see this as a game-changing product and attach the heavy promotions that any Palm offerings need to drive customer awareness. Will it shock anyone if AT&T's promotions for the phone are far more tepid than Verizon's were?

The smartphone race doesn't allow companies to sit back, finding just the right time to make a move. It's quickly coalescing around a handful of platforms. Palm might be able to hang on as an also-ran of the smartphone world for the time being, but as with any industry, those also-rans get swept under the rug as the market matures. Unless Palm has some kind of unique niche it can capitalize on, and it keeps its prices above a litany of Androids marching toward a subsidized free price, it'll soon have to face that fact.

However, the company doesn't have any niche to occupy. Its webOS is just another platform fighting for a slice of the consumer-spending pie, offering little differentiation from Apple's (Nasdaq: AAPL  ) iPhone and Google's (Nasdaq: GOOG  ) Android. Well, except that Apple and Google have actually convinced developers to create large numbers of apps for their platform, unlike Palm. 

Microsoft (Nasdaq: MSFT  ) should be taking close notes. While its strategy of licensing the mobile operating system more closely resembles Google's, and the company isn't exactly facing the same monetary and resource constraints as Palm, Microsoft will also be launching a competitive smartphone platform very late to the party. Last call, Microsoft: Take a couple of notes from your friend Palm, who is about to pass out at the bar.

So while Palm fanatics will continue to beat the drums about its smartphones' many advanced features, consumers aren't noticing. Even worse, the carriers are starting to lose patience, and any window of opportunity for Palm to prove why its platform is superior is closing fast.

This is still a volatile stock -- it could very well rebound off today's low and see plenty of ups and downs going forward. However, in the long term, Palm's in trouble. Then again, we didn't need today's announcement to see that.

Eric Bleeker doesn't own shares of companies listed above. Sprint Nextel and Microsoft are Motley Fool Inside Value picks. Google is a Rule Breakers selection and Apple is a Stock Advisor recommendation. Motley Fool Options recommends a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


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  • Report this Comment On February 25, 2010, at 6:03 PM, langco1 wrote:

    with the depression in the US now out of control and with no one running the country here are a few of the name bankruptcys for 2010...GM!chrysler,aig,hertz,sirius,riteaid,etrade,aol,moody's,blockbuster,street.com,sears,and palm...just a few!!

  • Report this Comment On February 26, 2010, at 7:11 AM, conradsands wrote:

    Verizon and AT&T = The Most Expensive Wireless Calling Plans in America

    Wireless Profit Margins:

    Verizon Wireless = 45 percent

    AT&T = 39 percent

    Sprint = 18.2 percent

    Now we know where Verizon and AT&T get all that money to run commercials 24x7 and pay out big executive bonuses -- the American consumer.

    4G wireless--which operates at speeds up to 10 times greater than today's 3G networks--could become a reality for many businesses and consumers over the coming year. Sprint, the current 4G leader, says it will introduce its first 4G smartphone before mid-year.

  • Report this Comment On February 26, 2010, at 7:12 AM, conradsands wrote:

    Verizon and AT&T = The Most Expensive Wireless Calling Plans in America

    Wireless Profit Margins:

    Verizon Wireless = 45 percent

    AT&T = 39 percent

    Sprint = 18.2 percent

    Now we know where Verizon and AT&T get all that money to run commercials 24x7 and pay out big executive bonuses -- the American consumer.

    4G wireless--which operates at speeds up to 10 times greater than today's 3G networks--could become a reality for many businesses and consumers over the coming year. Sprint, the current 4G leader, says it will introduce its first 4G smartphone before mid-year.

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