Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : PALM - The rebirth of Palm Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mang Cheng who wrote (2209)	10/18/2000 7:28:16 PM
From: David E. Taylor	Read Replies (4) \| Respond to of 6784

Mang: I guess this belongs on the HAND thread, but it seems a little dead there, or maybe Ad's PDA thread, but since some of it is relevant to Palm, I figured this was as good a place as any. I parsed the numbers on HAND's Q1 and reached some interesting conclusions: (1) While they increased unit sales and revenues by 36% sequentially over Q4, their pro forma net loss also increased by 36%. Simply put, despite the increased revenues HAND is still losing around $17 on each unit they sell. Unless they can increase ASP's, increase GM's, or cut their SG&A expenses, they will continue to lose this amount on each unit. (2) Increasing ASP's to reach break even would require a price hike of about $20/unit. With Palm's M-100 undercutting HAND's low end units on price, that'll be tough. On HAND's new high end units they're head to head with the CPQ/HWP Pocket PC's and only slightly less expensive, and PALM's price cut on the IIIc doesn't help. (3) HAND's GM is around 31% vs PALM's 38%. The difference is in the licensing fee for the PALM OS which I have now nailed down to $13/unit. Without this penalty on every unit sold, HAND's GM would be around 38-39%, similar to PALM's. No room for HAND to escape OS licensing fees unless they develop their own OS, which would clearly require prohibitive R&D spending and elapsed time. (4) I don't know what the GM's are like on the Springboard modules, but they are clearly not a significant contributor to revenues at this point in time. And they are presently expensive - it'll be interesting to see what PALM will be able to sell the SD expansion cards for next year. (5) HAND's R&D expenses as a % of sales are a little lower than PALM's, but their SG&A expenses are a whopping 39.4% of sales vs PALM's 24%. Cutting SG&A would seem to be out of the question since HAND has to spend big to build their brand and market new models and Springboard modules, something PALM has already established and in any event has greater economy of scale. But if HAND wants to reach profitability, SG&A as a % of sales has to come down. (6) The new higher price units will help HAND's product mix and ASP's, but I ran a bunch of numbers assuming up to 56,000 unit sales/month of these new units (compare that to the iPaq's 25,000/month which they're competing with), and still came up with a Q2 pro forma net loss of around $8 million on sales of $115 million, or $13/unit, coincidentally the amount they have to pay PALM per unit for the OS. Overall, break even for HAND seems to be at least a year away until they can manage to cut SG&A without hurting sales. I expect HAND to post impressive revenue growth of 455 to 60% sequentially Q2/Q1, which will probably propel the stock to new heights in January. But the OS penalty of $13/unit will continue to be a drag on the bottom line forever, whereas for PALM, it's just more gravy. I remain long a ton of PALM, a little HAND, RIMM and CPQ, and my PALM calls for the swings. David T.