Palm: Reactions to the Pre Hype

On a day when stocks were selling off hard on further concerns in the banking sector, Palm (PALM) shareholders are likely asking a few questions of their own. Specifically, is the hype surrounding the Palm Pre, its new handset, for real? With shares up more than 150 percent for the lucky few who picked them up early on this year, the answer is still "Maybe." There's no escaping that Palm has to claw its way back from a very distant third place behind Research in Motion (RIMM) and Apple (AAPL), and it won't be easy to create a meaningful challenger for the iPhone. A few reactions to Palm's recent good fortune:

Paul McWilliams at Next Inning sees challenges still to come:

PALM's biggest challenge, outside of its weak balance sheet, is to develop an applications designer community to support its new operating system with useful applications. I believe this strategy, which is exactly what Apple (AAPL) has implemented with great success already, is going to be the key differentiator in the smartphone handset market going forward. However, en route to that, PALM has plenty of other short-term challenges, of which its balance sheet is only one. Two others that I think should be considered follow:

By coming out with a new operating system, Palm has all but made obsolete its entire existing product line. Of course, we could argue that the existing line had minimal value since revenues for the November quarter dropped nearly in half to $191.6M from the $349.6M reported for the same quarter in 2007.

By giving Sprint (S) the exclusive on the handset, PALM is at least temporarily hooked into the number three player in the U.S. and thereby limited the Pre's volume potential. While I have a lot of respect for some of the people in the Sprint handset group and particularly like the new Samsung Instinct it introduced in a similar exclusive deal, it will take more than Sprint's volume to turn the ship around at PALM.

Analysts have questions too. Today, JP Morgan analyst Paul Coster downgraded Palm on its recent surge. From the AP:

"(Following) strong month-to-date outperformance, we are not prepared to add to positions in the stock ahead of a series of execution challenges, and in the face of weaker consumer spending," wrote Paul Coster in a note to investors. He downgraded Palm to "Neutral" from "Overweight". "In this market, we can only stomach so much risk," the analyst added. Palm's shares are up significantly since the start of the year, from around $3 at the end of December to $7.91 on Friday.

Still: Coster notes, "We believe Palm has authored possibly the best (operating system) in the handset market" and said it could cause a "major disruption."

Finally, iStockanalyst.com weighed in last week on what the Pre has to accomplish to turn Palm's fortunes around:

Two things have to happen: The company needs to get the product to market quickly, before competitors can get their OS up to speed. Then the phone has to become a "gotta have" product in the smartphone arena. Many predict that up to half of the new cell phones to be sold in the next few years will be smart phones and I see the market breaking into two tiers: Tier 1 is the "gotta have" expensive tier which currently includes the iPhone and the Blackberry Storm. The second tier will be less expensive phones from Nokia, Samsung and Motorola running either the Microsoft OS or Google's new Android OS. Palm needs to be in tier 1. If the Pre can develop the market buzz to be considered along side the Apple and RIM products it will be successful.

The stock market likes the new product, doubling the stock price since the announcement of the Pre and the webOS. I would be watching the Internet tech sites and social networking streams to get a feel of what the public thinks of the phone. If the vibe is positive, I predict that PALM will return to profitability pretty quickly.

Time is of the essence for a successful Pre. That's because Palm continues to burn cash at an uncomfortable rate. It could raise cash via a secondary private placement (as McWilliams posits), but Coster expects Palm to burn $150 million over the next three quarters. At a time when consumers are cutting back, pinning the company's hopes on the Pre looks like an ambitious, if highly risky, decision.

Comments

[Kontra:]

"Pre's introduction, website, technology packaging, industrial design, UI, product naming and positioning...down to the flow of its CES presentation were pointedly, but perhaps not surprisingly, Apple-like. Of all the current iPhone competitors, Pre clearly captures the 'soul' of the iPhone as much as any product not-from-Cupertino can. Whatever Pre 'borrows' from the iPhone, it does so not with the brazen indifference of recent iPhone-killers, but with care and purpose."

However:

"Palm is clearly late to iPhone's party. By the time the first Pre is sold, the iPhone will likely have 30 million users in 70+ countries, 15,000 apps, a huge developer and peripherals ecosystem, perhaps a third of the market share and 40% of smartphone revenues. And that's before the next generation iPhone device and OS are introduced."

I explored Pre's chances in:

"Strategic shortcomings of Pre in the post-iPhone era"
counternotions.com/200.../

Jan 21 04:52 AM

[Nextel Acce...:]

Palm is late to the party, but the device does look fantastic. They will need to introduce a string of successes to get back into the game. This looks like a good start. Don't forget Sprint has the best data network, despite the negative press they get.

Jan 21 08:12 AM

[SprintSucks:]

Sprint has the best data network? Based on what body of evidence? They've limited their data usage with a 5GB cap, so it's no better than anyone else's. They run the same EVDO rev A that Verizon does, so speed is essentially the same. Verizon has greater coverage. So how is Sprint's data network better???

Jan 21 01:31 PM

[stuck in time:]

Maybe Vz has better coverage for you. Sprint has better coverage for me. What about that guy over there? Don't make blanket statements.

Gizmodo tests say Sprint is better at data. Not the first time they've won this category. i.gizmodo.com/5111989/...

Jan 21 08:35 PM

[Tom B:]

No credible programming interface. Expect simple "widgets" instead of real applications. The Pre is so lame even MSFT could have done better (in the Bill Gates years, anyway).


On Jan 21 08:12 AM Nextel Accessories wrote:

> Palm is late to the party, but the device does look fantastic. They
will
> need to introduce a string of successes to get back into the game.
This
> looks like a good start. Don't forget Sprint has the best data
network,
> despite the negative press they get.

Jan 21 11:40 PM

[captain_obv...:]

Uhhh "No credible programming interface"??? Yep you're right no one uses Java or CSS to program anything. Do some reading!


On Jan 21 11:40 PM Tom B wrote:

> No credible programming interface. Expect simple "widgets" instead
> of real applications. The Pre is so lame even MSFT could have done
> better (in the Bill Gates years, anyway).

Jan 22 11:06 AM

[Nelly:]

@SprintSucks

Keep your Verizon service and overpriced plan.

Jan 23 08:38 PM

[Aryana:]

My experience using all four carriers is as follows:

Four coverage and data services:

1. Sprint
2. Verizon
3. ATT
4. T-Mobile

For Price:

1. Sprint
2. Everyone else is 2nd.

For handsets:

1. Sprint's Palm Pre
2. ATT's Apple iPhone
3. VZ's Blackberry Bold

For Technology and platform:

Qualcom's CDMA is by far the best, however GSM is more pervasive.

If Sprint continues executing the changes it has in the latter quarter it will unequivocally emulate T & VZ. They have the best platform and are currently in the lead to roll out 4G. As the sole distributor of the Palm Pre they should be able to retain their customer base since the new management has done a wonderful job with customer service.

Jan 26 01:57 AM