Palm Pre Sales Guesstimate: 1.5 Million in First Year

Palm’s Pre introduction has won over a lot of folks–including some Wall Street bears. And one is predicting 1.5 million units 12 months after the Pre launches sometime in the first half.

In a research note, Citi analyst Jim Suva upgraded the Palm to a “hold” from a “sell” based on the Pre, which “looks like a game changer” and “could help improve financials.”

Suva’s note, which came amid a similar upgrade from Deutsche Bank, has the

usual caveats about Palm. The caveats: No one knows what the margins will be on the Pre and carriers and consumers will likely hold off on older Treos and Centros to make for an ugly quarter or two.

That said the Pre has Suva a little wound up. He writes:

Our estimates move significantly higher on the strength of the Pre; however, we still forecast operating and net income losses for the next few fiscal years. Although we are very optimistic on unit volumes, we are taking a fairly conservative view on ASPs and margins. While reaction was overwhelmingly positive (and rightfully so in our view), very little was asked or offered on Palm’s pricing strategy for the Pre. We think Palm will soon have to offer details on expected ASP for the Pre and will likely revisit our estimates in the future. That said, even with a fairly conservative ASP and margin expectation, our forecasted operating losses narrow dramatically and we would expect that
trend to be echoed in consensus estimate.

Suva also estimates that Palm management won’t fall for the profitless prosperity stuff like it did with the Centro. Palm sold a bunch of Centros at the $99 mark, but that didn’t exactly improve profit margins.

Suva notes:

We do not believe the Pre will be targeting the entry level market nor targeting a $99 price point; we expect an ASP of $350 - $450 with the consumer paying $199 - $249 after subsidies from Palm’s launch partner Sprint and mail-in rebates from Palm. We note that there is a risk that Palm may have to respond to aggressive subsidies/pricing by other carriers and vendors, which would clearly have a negative impact on margins; however, we don’t think Palm management is eager to repeat the Centro experience of profitless prosperity.

Fair enough. Once he adds up the unknowns and caveats along with the buzz about the Pre–it was even mentioned on Treo user Howard Stern’s show Monday–Suva reckons Palm will sell 1.5 million Pres in the first year. Suva’s assumption is that the Pre will remain exclusive to Sprint for a “fairly lengthy period” to entice the carrier to offer a hefty subsidy.

Here’s a look at Suva’s guesstimate (in millions):
Suva said his estimates may be conservative since he doesn’t assume an international launch yet. We’ll see, but even if Suva is in the ballpark Palm’s financial picture should improve–after a few ugly quarters until the Pre gets rolling. Investors seem to be sold. Here’s a look at the 5-day double from the Pre love.

Comments

[bryanz:]

1.5 million units for the Pre, exclusive to Sprint at 40 million postpaid subs (I'm assuming the Pre won't be offered prepaid), is roughly 4.25% of their subscriber base buying this phone.

Is that feasible? That seems pretty high considering the projected launch isn't until half the year is already over. PALM has a gap below $5 that's just begging to be filled, especially in this market.

Jan 12 09:59 PM

[Tom B:]

OK, so here's a severely limited smartphone BUT it wants to sell for MORE than the iPhone AND it comes from a company with a VERY poor reputation for reliability (I've personally owned some Palm Pilots and I persoanlly know a number of Treo "victims").

When Apple launched the iPhone (initially) without a credible development API two years ago, everybody howled. Now Palm has this anemic widget/javascript based API and nobody notices? And it's got a clunky, ugly physical keyboard, a pitfall the iPhone avoided. More stuff that can break and will add to the manufacturing costs!

I'd be surprised if the pre does nearly as well as RIMM's latest efforts. At least RIMM has some loyal customers left!

Jan 13 09:12 AM

[MTVDAVE:]

I think this stock is going to be huge.If palm had rimm's market cap,the stock would be trading at ten cents.With their new products and name recognition this stock is going way up!The people that are negative on this stock are just upset because they feel they missed the boat,but it's not to late!

Jan 13 11:41 AM

[j_remington:]

These estimates are pie-in-the-sky. Wake up people... RIMM AAL NOK LG Samsung etc. are not sitting on the sidelines. Who will switch to Sprint? Nobody.

Jan 13 03:31 PM

[bryanz:]

I feel like this is something you should have written about a decade ago when PALM Pilots were still for sale or when people where still buying Treos... PALM is down and out, trying to bust into a crowded market on a declining network, and it won't be sold for another six months.

PALM should be back below $5 at some point in the near future.

On Jan 13 11:41 AM MTVDAVE wrote:

> I think this stock is going to be huge.If palm had rimm's market
> cap,the stock would be trading at ten cents.With their new products
> and name recognition this stock is going way up!The people that are
> negative on this stock are just upset because they feel they missed
> the boat,but it's not to late!

Jan 14 04:17 AM