Palm Is Down but Not Out
MONDAY, DECEMBER 10, 2007
PLUGGED IN
By MARK VEVERKA
IT WOULD BE EASY TO HANG UP ON PALM right now, but you just might want to hold the phone.
The maker of the Treo, and arguably the father of the smartphone in the United States, has seen better days. Last Thursday's preannouncement of a loss for the quarter ended November 30 isn't good news. The company revealed that Treo 755 handsets missed their shipment dates to Verizon in December, and that warranty costs from its lower-end Centro handsets were higher than expected. Again, nothing to write Santa about.
Wall Street punishes failure to execute and missed quarterly numbers, so Palm (ticker: PALM) shares were hammered, opening on Friday 18% below Thursday's close. But they started to recover once Morgan Keegan analyst Tavis McCourt reported that shipments of Palm's Windows Mobile smartphones-meaning those using the Windows Mobile operating system rather than Palm's own-have grown faster than total Windows Mobile shipments in the past two quarters. Shares closed Friday at 5.74, up 6% for the day.
One possible conclusion to draw from the Windows Mobile sales is that Palm is gaining with corporate users-who like integration with their Windows operating systems-at the expense of Research In Motion's (RIMM) BlackBerry. It also implies Palm is selling more handsets abroad.
These are modest positives. It would be easy to say that the Treo platform is dead and that Palm is likely to get crushed by one of many competitors like Nokia (NOK) with more scale. In fact, many bears on the Street do say that.
But that would dismiss the huge investment by Elevation Partners, a Menlo Park, Calif., private-equity shop that in October injected $325 million into the company for a 27% stake.
What's its plan?
On Friday, I spoke with Elevation managing partner and Palm board member Roger McNamee, who was nonplussed by the miss. Still it wasn't a total surprise, since Elevation has just started to implement its long-term strategy for the company to increase its share of the one-billion-unit mobile-handset market. "The shareholders voted to support management's strategy to invest in products and operational expertise so that Palm could participate fully in the growth opportunity of smartphones," McNamee says.
"You won't even see it in the numbers for awhile, but the company is off to a great start," he adds.
Joining McNamee and the Palm board is former Apple Chief Financial Officer Fred Anderson and former Apple product guru Jonathan Rubinstein, who serves as Palm's executive chairman and head of product development. Rubinstein was instrumental in developing Apple's iPod and iMac lines.
McNamee is confident that the new blood can transform Palm into a strong niche player in the handset market, like Apple. One opportunity is affordable mobile e-mail for everybody-not just corporate executives. Palm's new Centro handset, introduced this fall by Sprint at a price of about $100, is selling like hotcakes, McCourt says. (Sprint doesn't disclose unit figures).
Elevation inherited that product, but it suggests some of the future possibilities in mobile broadband. Says McNamee: "We are betting our fund on that notion."
online.barrons.com |
