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We believe investors ought to consider reducing Palm (PALM) holdings as the ship date for Palm Pre approaches. We are maintaining our Unfavorable Opinion.
The Palm Pre is a heavily hyped product coming from a company we see as "running on cash vapors." We are concerned that yield and supply problems will hurt unit contribution and potentially limit volumes. Moreover, experience tells us that when companies begin to ship heavily hyped products which have created expectations leading to a meaningful stock run up, investor attitudes shift from high expectation to one of expectant measurement. This usually means lower stock prices. We hear a lot of rumors about when the Pre will ship. Aside from "we will ship in the first half," all we really know for sure is that Sprint (S) began network testing early in April.
Last week, Business Week published an article evaluating the Palm Pre’s economics. It provided some speculative data points. The article was based on an iSuppli estimate which was materially less than our Palm Pre unit cost and revenue estimate. The information in Business Week was somewhat misleading, they published a $138 material costs. Reality is, iSuppli estimates the manufacturing cost to be about $170. Even this is somewhat speculative as iSuppli has not done an actual teardown. Our guess is the Pre would cost about $200 to build. We believe iSuppli is a better guesser than we are.
In that article BW speculated the average selling price would be $300, this is 14% less than our second quarter price estimate of $360 and exactly in-line with our steady state pricing estimate. With respect to pricing, we don’t know any more than you. Given's iSuppli's estimate, there is a chance the Pre's unit contribution will be $20 to $30 higher than our estimate.
If everything goes reasonably well, we expect Palm will ship about 1.0 Million units in the first six months. All the noise we are hearing from "the channel" is that there are issues. This is something we can neither verify or deny. It does make some sense to us that there would be issues as the Pre is an unproven hardware and operating system platform. We'd expect issues to take the form of early cost overruns and fewer initial shipments. Once again, we don't know any more than you.
As with Palm, Sprint has remained relatively mum on the subject. CEO Dan Hesse has said he will not ship until it works well. We would not be surprised if Sprint provided a price break on its Simply Everything plan to early Pre customers. With its customer losses it has more pricing flexibility than other networks. Again this is speculation and we know of no particular plans that Sprint will do this.
Finally, and this is more relevant outside the United States, a number of very attractive Pre competitors are hitting the market as we speak. LG's Arena, Nokia's (NOK) new phone, e71, the new Android and new Touch Diamond II and Pro II phones from HTC are just a few. This does not even consider what Apple (AAPL) may do on the product or legal front.
Disclosure: The author owns no common stock in any of the companies mentioned but does own Sprint and AT&T Wireless bonds. JRPG has favorable opinions on AAPL, NOK, S, VZ, T and Unfavorable opinions of PALM and RIMM.
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Ore has a decent browser, unlike Blackberry, but no media support and no applications. No way they can catch Apple on either front. Background applications (supposedly a strong point) is actually a huge problem (as it is on Blackberry).
Apple is only getting started here, but is already way out front in the technology, media (iTunes!!! and movies, podcasts, etc... As well as thousands of great and affordable applications) and mind
share.
Game, set, match.
Finally, it was clear that Jon was not contributing much at Apple when Jobs had him present the cache flush demo in the waining days of the PPC G4 and G5.
Which company has the most smartphone experience from a software perspective?
Yes carrier has the most smartphone experience with a particular brand?
Answers> Palm, Palm, Sprint. If anyone can pull it....this is the right combination.
The best thing they have going for them is that the iPhone is not available on Sprint.
The real point here is that Palm will run out of cash once decent but not outstanding sales emerge. At that point, someone with deeper pockets will buy them. The question is...who? Microsoft? Dell?
As for "game set and match"? Far from it. The iPhone *is* the best smartphone on the market right now - I agree. But that doesn't mean it isn't flawed (it is), and doesn't mean that it can't be beaten (it might be)
Objectively; I think it's even money between them.
Subjectively; I hope the pre succeeds, and that competition makes both iPhone AND pre better phones in the long run.
Remember: look at the cola wars. When Pepsi succeeds, doesn't mean Coke fails.
> Which company has the most smartphone experience from a hardware
> perspective?
>
> Which company has the most smartphone experience from a software
> perspective?
>
> Yes carrier has the most smartphone experience with a particular
> brand?
>
> Answers> Palm, Palm, Sprint. If anyone can pull it....this is the
> right combination.
Seems logical, but... here are the exact words of PALM CEO Ed Colligan (on the iPhone):
"We’ve learned and struggled for a few years here figuring out how to make a decent phone," he said. "PC guys are not going to just figure this out. They’re not going to just walk in."
Nuf said.
> Which company has the most smartphone experience from a hardware
> perspective?
>
> Which company has the most smartphone experience from a software
> perspective?
Palm might have the longest experience, but RIMM arguably has the most, and Apple possibly has the best.
I am a technology supplier to the wireless carriers and I know of what I speak. Sprint is not healthy and will not last.
On May 03 03:23 PM Aryamehr wrote:
> Next time you decide to ROTFL (roll on the floor with laughter) make
> sure it doesn't boomerang toward yourself. Why don't you counter
> what is purported rather than write a lame article without any substantive
> facts?
>
> Is it not true that Sprint is the only wireless company presently
> that offers 4G?
>
> Is it not true that they have the most reliable 3G network?
>
> Is it not the claim of the technocrati or pundits that the Pre is
> the best phone they had seen to date?
>
> Is it not true that the Pre's WebOS is a game changer? Is it not
> true that the developers using WebOS also concur that the WebOS is
> living up to the hype surrounding it?
>
> Is it not true that Sprint charges $50 less than ATT & VZ for
> their all you can use smart phone plan?
>
> Isn't it true Mr. Hallaren that everything you have purported is
> nothing but assumed? Your assumptions aren't even based on a semblance
> real facts, essentially they are based on other peoples assumptions.
> However, I do understand the ulterior motives behind most of your
> claims.
>
> For disclosure purposes, I have recently switched all my phones to
> Sprint and am eagerly awaiting Palm's release of the Pre. My experience
> with Sprint has been execellent in every reasonable manner possible;
> coverage, customer service and pricing. Owing to this I have also
> invested in Sprint with a long term perspective.
>
> When the Pre is launched we will see who will ROTFL.
>
>
>
The Pre lacks a serious development environment-- it's basically web widgets: the iPhone has XPlane; the Pre will have PacMan.
They'll sell some Pre's, but, frankly, I'd bet on RIMM or Android to scoop up the bulk of iPhone -resisters.
On May 04 08:56 AM Qunchuy wrote:
> On May 03 09:30 PM mani.chawla@treova.com wrote:
> Please remember that the Pre has raised the bar so much that the competition is reeling with chaos.
I've not seen a whole lot of chaos from the competition yet, once it's actually in the wild, maybe. All I see at the moment is "sound and fury; signifying nothing."
It'll take 6 months after release before we find out if it is anywhere near a game changer. We've already seen what happened when an OS vender tried to integrate the web browser into their OS and it wasn't pretty for Microsoft. Unless Palm has REALLY, and I mean REALLY insulated the Pre WebOS it's going to be ugly* for users.
*And I don't mean 'not attractive', appearance wise it's quite pleasing.
Are you a 16 year old teenager chatting with his pals over what you did last night at the party? Do you really consider yourself a journalist/analyst with these types of posts on a respectful (relatively) investment blog? I have never seen any serious blogger, journalist, analyst or journalist/analyst wannabie post anything like this to his/her critics. Regardless of you or Aryamehr being right or wrong, your comments is disrespectful and amateurish. You either present rebuttals to his statements or say nothing and leave the mocking to some clowns on this board.
On May 03 12:54 PM Aryamehr wrote:
> Please remember that the Pre has raised the bar so much that the
> competition is reeling with chaos. They just don't know how to counter
> the WebOS and what the Pre will do to their bottom line. How will
> Verizon compete with Sprint when the Pre is head and shoulders superior
> to their best Smart phone, that costs at least $50 more per month
> for their 'simply everything plan?' How does ATT continue to steal
> Smart phone customers from Sprint when the Pre is launched? Isn't
> it patently obvious that if Sprint has a better Smart phone at a
> monthly cost of $50 less than comparable plans from ATT & VZ,
> that the bottom line for both these companies will be negatively
> effected. This is why Palm and Sprint have witnessed much maligned
> pervasive spin against their companies. Let's just look at why Palm
> picked Sprint. First Sprint is the only company with 4G capabilities
> and by the end of this year they will have 4G available in ten metro
> areas from Las Vegas and Portland on the West Coast to New York on
> the East Coast. At this moment neither ATT nor VZ will have anything
> to offer other than hyperbole or spin about their future 4G. On another
> note Sprint has the most reliable 3G network in the nation, according
> to indipendent surveys. Now couple this with the savings of $50 month
> and what you will have is the best Smart phone at a substantial monthly
> discount from what ATT and VZ offer. In summary, the Best smart phone,
> on the fastest and most reliable network at a substantially lower
> monthly cost. Is this not compelling enough? Now do you see why the
> spin masters are out in droves? The fact is both Palm and Sprint
> are going to do extremely well from the day the Pre is launched,
> the only question is logistics and execution.
Also, there are too many third party developers that depend on the iPhone framework for there to be any curveballs thrown in June. We know what is coming from Apple - it's good, but they aren't game changers. Look at Android's adoption rate - very slow and almost laughable, but they are still picking up pace. I think that's a worst case scenario for Palm. They have a much sleeker hardware device on their side. And hey, maybe the texters will buy this one - because they certainly aren't texting on the iPhone.
All that being said, the fundamentals seem to indicate that holding Palm through the release wouldn't be the best idea. That aside, it's not all doom a gloom for Palm and Sprint.