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4 Reasons Palm Isn't Heading to $0

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We're received an SOS from webOS. The Pixi is dust. Pre sales have gone postal.

Palm's (Nasdaq: PALM  ) implosion last week was brutal. There's no way to sugarcoat the smartphone pioneer's bleak guidance, which calls for less than $150 million in revenue for the current quarter. This would be less than half of what Wall Street was expecting, and an even bigger dip sequentially.

This kind of negativity often becomes a self-fulfilling prophecy. Now that a couple of analysts are following fellow Fool Rich Smith's lead in declaring an apocalyptic $0 price target, sales of the multitasking handsets will dry up even faster. It just doesn't feel right to buy into a two-year smartphone contract when the manufacturer may not have the financial wherewithal to meet you at the other end.

I was right in trashing Palm as an investment 10 months ago, but I won't join the vultures in Nil City. A beaten-down Palm certainly isn't the attractive buyout candidate it could have been a year ago, but the company's hardly worthless -- even if we consider its negative book value of nearly $300 million.

Let's go over a few potential saviors.

  • Microsoft (Nasdaq: MSFT  ) : Mr. Softy isn't as desperate as it was in the past. Hope springs eternal for its Windows Phone 7 Series platform. It also passed on buying the more logical Research In Motion (Nasdaq: RIMM  ) when it had the chance. However, a humbler Microsoft should realize that it can no longer march into battle, unfashionably late, with just one sword. If the price is right, this is one of the few areas where Microsoft can be a material acquirer without ruffling regulatory feathers.
  • Nokia (NYSE: NOK  ) : The world's largest smartphone player globally is an afterthought domestically. Rescuing the Palm brand before it becomes irreparably ruined would help it win style points and approach the stateside market from a different angle than its Symbian-flavored strategy. The Finnish giant's acquisition would also help ease concerns of obsolescence from current Palm device owners.
  • Dell (Nasdaq: DELL  ) : If Microsoft is unfashionably late, at least it sent an RSVP. Dell is trying to crash the crowded party. Rumors of a Dell acquisition made the rounds last year, when it made tactical sense. Now it just makes financial sense to throw out a lifeboat and nab a long shot of a lottery ticket.
  • Hewlett-Packard (NYSE: HPQ  ) : HP makes less sense as a suitor than Dell, but both computer manufacturers with portable-computing goals can benefit from a proprietary platform such as webOS.

I'm almost tempted to throw Google (Nasdaq: GOOG  ) into the mix -- especially as a strategic move to shut out nemesis Microsoft -- but it's gaining too much ground with Android. It would confuse the marketplace at a time when it is establishing itself nicely as the multiheaded alternative to iPhone and BlackBerry.

However, if the price is right -- and the rampant pessimism is making it exactly that -- I don't see this reverse auction going anywhere close to zero.

Do you think Palm will be acquired, turn around organically, or file for bankruptcy protection? Share your thoughts in the comments box below.

Microsoft and Nokia are Motley Fool Inside Value choices. Google is a Motley Fool Rule Breakers selection. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz is starting to see more smartphone products creep into his home lately, but he owns no shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (14)

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 March 22, 2010, at 4:07 PM, nixtr wrote:

    They must have a patent portfolio that makes them worth something to someone. Not to mention a handful of die hards that will continue to support them.

  • Report this Comment On March 22, 2010, at 5:07 PM, marv08 wrote:

    Well, if the patent portfolio would create any money, it should be visible in their income?

    MS will never ever support a platform based on Linux. Not in a million years. They already have three platforms to support (WinMob 6, WP7S and Danger). Makes no sense.

    Nokia is having three platforms in the works (Symbian, Maemo, Moblin). Makes no sense.

    Google is not making a penny from mobile phones, they want the ad revenue. They are the default search engine on the iPhone and Android is growing. Buying a niche player makes no sense. Google buying RIM would make some sense though. This could get Bing off the RIM devices and making the Blackberry Enterprise Server open or cheaper could damage MS - they would own the enterprise market.

    HP is certainly not interested, if they will do phones at all, it will be Windows devices. If Dell wants to sink some money: fine, their reputation and customer service will only prolong the agony...

    The only reasonable candidates, IMHO, are generic phone makers which need to differentiate themselves... that is: HTC, LG, Samsung or SE. They all are able to make better hardware than what Palm is offering now (if they want to), so there could be some upside.

  • Report this Comment On March 22, 2010, at 5:44 PM, SuperTerminator wrote:

    PALM does not have a technological advantage over other producers of cell phones. In addition, the cell phone arena is becoming to densed and crowded. I tend to join analysts who suggested a value of 0 for PALM shares.

  • Report this Comment On March 22, 2010, at 6:14 PM, SenhorAmazonas wrote:

    It seems that a generic Chinese manfacturer would benefit the most from a grab for Palm's OS. Maybe even a contract manufacturer like Foxconn could use it to sell to a multitude of smaller players. Even so, the fuse on Palm's cash situation is burning short and the OS might not be worth what Palm is carrying in debt. They may be looking at a liquidiation situation regardless of a software sale.

    Nokia could use some help with their US sales but they don't have a stellar track record in playing nice with California cell phone software companies - they were in court battles with Qulacomm for the better part of the last decade. If a Nokia approach would help, you would think that Palm's addition of Jeff Devine from Nokia to their executive tream in 08 would have created some results but nothing about Palm's operational numbers mirror Nokia.

    Dell could leverage this to up their chances of getting some late traction in the mobile market but they have strong ties to Foxxcon for manufacturing and it may make more sense to let FC handle the hardware and software R&D for them (maybe with a modified Dell version or a exclusivity contact for 3-5 years)

    Palm is worth something to someone but that doesn't include stockholders hanging on for the ride. I think they will hit zero before they can start shipping for the 4th quarter Christmas market.

  • Report this Comment On March 22, 2010, at 6:47 PM, Red777aetrof wrote:

    i agree with marv08 except Dell. Dell has no capabilities in OS and software and is mostly a metal bender that spends little in R&D. exec's can't even travel without sharing hotel rooms -- do you think that Michael Dell would piss away any of his money on a platform that's got less then 3 pts of share and think he can do something with it.

    all the names that you have: Dell, HTC, Samsung, SE, Mot, LG are ALL going to Android because it's FREE and because GOOG has more money then god and has a business model that allows it to give away the OS for free.

    The only possible logic is the patent troll play where GOOG is interested in some portion of the IP portfolio in order to inoculate itself from AAPL, but even that thesis holds little water. Remember the touch (pinch and expand) user interface was pioneered by AAPL and introduced 2 years before Palm's webOS. The old Palm OS from Treo and Pilot days (b&w anyone?) has as much IP value as maybe Atari or Commodore. Come on, betting on a company's stock in the hopes that there may be some piece of paper that can be used in a courtroom is not investing -- it's simply merely hope. Prayer probably will work just as well.

  • Report this Comment On March 22, 2010, at 11:03 PM, beetlebug62 wrote:

    HTC, they could use the Palm patents as defense.

  • Report this Comment On March 23, 2010, at 11:32 AM, applebid wrote:

    Eell is certainly not going to come out with a product that is worrisome to Apple and the iPhone. Dell doesn't do quality. Dell does cheap.

  • Report this Comment On March 23, 2010, at 5:52 PM, jstthnk wrote:

    I don't know don't be so quick to pull the plug on PALM, the stock price is cheap so a lot of people will look at it as a bargain, and if you check out the features on their phones they actually have a great, competitive product, they just have to work harder getting it out there, so I'm going to leave this as a "wait and see"

  • Report this Comment On March 24, 2010, at 12:21 PM, grendeth wrote:

    When Palm was around $15, there was not end to how this company will take on the world by storm with their new Palm Pre. Palm users were showing off all the cool tricks the new Pre can do and predicting the rise of a mighty giant. What happen?. Reality?.

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