The Palm Pre: Can One Device Save Two Companies? 9 comments
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The Palm (PALM) Pre launch is the biggest product launch from Palm in years, perhaps ever, and there are two companies hanging their hopes on this phone as both Sprint (S) and Palm have seen their stock prices plummet to multi-year lows recently.
The Palm Pre will go head to head against the huge success of the Apple (AAPL) iPhone for consumers' attention, and to date the Pre has not backed down from the comparisons, in fact they have encouraged them. In March, we wrote (The Desperate Palm Pre-scription) about major Palm investor Roger McNamee, managing director at Elevation Partners, who ranted on Bloomberg television about the fact that the Pre was going to steal all of the iPhone users away. Whether he truly believed that or was just creating hype, it seems that the anticipation for the device is higher than any other supposed “iPhone killer” to date. On Monday afternoon, Palm and its exclusive carrier Sprint announced that customers will finally be able to purchase the Pre on June 6th, just days before Apple’s conference to talk about their new operating system and possibly announce a new phone.
Other key details were also released, such as the price of the Pre will be about $199 after a mail-in rebate and locking in a two year service agreement. The price point again puts it in direct competition with Apple and other premier smart phone maker Research in Motion (RIMM). Any higher than that and consumers would be turned off, but any lower it cuts into Palm’s margins that they so desperately need. Palm has been burning through cash as its stockpile of cash has been cut in half in the last year alone from $262 million to $131 million as off the quarter ended February 2009. With only one quarter left in fiscal 2009, the company is expected to lose another $.63 cents for the quarter, bringing the total for the year to a loss of $2.36. Clearly, with the release of this game-changing device Palm hopes that it can start to generate cashflows instead of hemorrhaging them each quarter. Even so, it would have to be an unbelievably successful first year for the Pre in order for Palm to be able to record a profit in fiscal 2010.
The buzz surrounding this phone is significant, and perhaps it is because consumers have shown they want another option in the smart phone market. However, it is also has the added
intrigue of an all-in bet at the final table in a poker tournament. If this release is a flop, both companies will take years to recover from the blow. The Pre could become just as popular as the iPhone and perhaps more so, which would go a long way to restoring both Sprint and Palm to the elite status within their fields. If the Pre is marginally successful both Palm and Sprint could survive. But with the smart phone industry being stretched to include competition from heavy hitters like Google (GOOG), Microsoft (MSFT), even Garmin (GRMN) in an already crowded space, it is clear June 6th and the months following will be absolutely huge for both sponsors.
Traders will undoubtedly try to gauge the reception the Pre receives and volume could be heavier than normal in the days leading up to and following the release. As for Ockham, we believe Palm is Fairly Valued at the current price level, and after the recent run-up we are not recommending the shares.
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made extreme claims for the palm in public, Palm legal
was completely terrified and hurriedly filed 'corrections',
(SIX PAGES of it!) to the SEC!
Here's what Palm Legal said to the SEC (vs. all the
marketing hype)
About claims of Palm's much greater speed than the
iPhone.
Palm Legal:
"the Palm Pre is still under development and it is
premature to state the speed at which the device accesses
the web or the relative speed of the Palm Pre compared to
the smartphone products of competitors."
About the Superiority of the Palm vs other smartphones
Palm Legal:
"the Palm Pre is designed to be the first phone based on
the Palm webOS platform and as a result will have different
operating characteristics and features than other phones,
however; the Palm Pre is still under development and it is
premature to compare its full functionality with that of
other phones"
About the better reception to iPhone's AT&T 3G network
Palm Legal:
"regarding the relative development and stability of
Sprint's, Verizon's and AT&T's 3G networks are
generalizations regarding wireless cellular network
performance that may or may not be true depending on a
variety of factors specific to geographic regions"
About McNamee's claim that iPhone users will flock to the
Pre.
Palm Legal:
"an exaggerated prediction of consumer behavior pattern
and is withdrawn"
About the superiority of Palm Web Os vs iPhone i.e that it's
more 'advanced' and 'newer' than OsX.
Palm Legal:
"estimating one specific age for the many technology
components underlying any mobile phone is inherently
imprecise and these statements are withdrawn"
------
Seems like the only thing Palm Legal didn't dismiss were
McNamees statements that the Pre wasn't a real competitor
to the iPhone but something else, the Pre as sitting
between ordinary cell phones and high end smart phones.
McNamee said "I hope people will be excited about the Pre"
although "it won't be fantastic for playing games like the
iPhone." !!!!
i.e the Palm can' run CPU intensive stuff like high end
games!
That bit that the Pre won't be good at games like the
iPhone Palm Legal didn't change! :)
People should chew on all this awhile before wafting in the
Pre hype.
Sprint for sure is NOT depending on Palm.
Check Sprint's upcoming (early June!) lineup - they've got total insurance against a Pre flop.
On May 19 06:14 PM JamesApple wrote:
> Research in Motion is going bankrupt soon, possibly before the year
> 2011.
Hack, I will get a copy of Linux, slap on some UI of my own making and release it in July 2009 and I can also claim that my OS is "newer" than WebOS and should be more "advanced".
Hmmm..., don't they know that WebOS uses Linux? Linux is a flavor of UNIX? Mac OS/X is also based on UNIX? Not only that, a fully certified version of UNIX?
Where is the "advancement" when they are more or less sitting on the same OS?
Pre is a good little tool that will serve many people well but it is not something earth-shattering. If anything, iPhone helped to make Pre what it is today!
I consider the 100 USD mail-in rebate a dumb move. It is a psychological barrier that does not help at all (buying the Pre, plus the Touchstone charger kit, plus taxes means putting more than 400 USD on the table). They also missed the opportunity to offer a rate plan being at least a little lower than the bottom iPhone/AT&T offering. If AT&T is announcing a slightly less expensive plan on June 8th and the new iPhone will boost storage capacity to 16GB at the 199 price point... then the value proposition will not look too good.