Palm: Target Increase to $14 in 'Pre' Anticipation

With just 12 days to go before Palm’s (PALM) “Pre” smartphone hits shelves at Sprint (S) in the U.S., RBC Capital analyst Mike Abramsky Tuesday morning raised his price target on the stock from $12 to $14, writing that the Pre offers the benefits of both Apple’s (AAPL) iPhone and Research in Motion’s (RIMM) Blackberry. Abramsky notes the device has a “clever touchscreen [user interface], mobile web, and physical keyboard.”

There are no changes to estimates in the note; Abramsky simply thinks a positive reception of the Pre will trounce the skeptics. His earnings expectations are higher than the Street, with a forecast for a loss of $1.91 per share in the fiscal year ending this month, versus the consensus for a loss of $2.37 per share. For next year, the numbers get trickier because analysts are trying to estimate sales of the Pre before its even shipped.

Suffice it to say, if the Pre can sell 10 million units from its introduction next month through calendar year’s end 2010, the company could have $1.4 billion in sales on a non-GAAP basis in the May, 2010 fiscal year, meaning, including deferred revenue from the Pre. Non-GAAP profit would total a loss of 13 cents. The Street, by contrast, is looking for a loss of 78 cents on sales of $1.37 billion.

(Notice the 10 million unit goal is the same one CEO Steve Jobs set for Apple for the first full year of iPhone sales when the iPhone was introduced in 2007. Apple, of course, surpassed that target with the iPhone. I guess 10 million has become everyone’s benchmark)

Positive drivers for Pre, in Abramsky’s opinion, include the possibility that any supply shortage of the Pre would increase the desirability of the Pre, much the way shortages of Nintendo’s (NTDOY.PK) Wii did for that device. He says the $199 price for the phone “hits a sweetspot” for consumers, as does the “all you can eat” data plan Sprint will offer at $69. He expects other phone companies aside from Sprint to take up the device, including the U.K.’s Vodafone (VOD), Spain’s Telefonica (TEF), or Telefonica’s operation in the U.K., O2.

UK paper The Guardian reported over the weekend that sources say O2 has, in fact, won the deal to carry the Pre.

Abramsky is expecting Palm’s WebOS operating system will show up on lots of other models with prices that will fit different budgets. For example, he expects AT&T (T) will pick up something called the “Pixing,” also referred to as “Eos,” which would be a stripped-down version of the Pre for tigher budgets.

The bottom line, in Abramsky’s view, is that there’s enough room for several smartphone vendors: ” We think the fast-growing underpenetrated Global Smartphone Market (RBC est 130 million data-centric Smartphone units CY08 growing to 400M CY12), can support several entrants like Palm, Apple, RIM and Google.”

Eric will be shmoozing with the digerati at the All Things Digital conference in California, where Palm Executive Chairman Jon Rubinstein is expected to make an appearance, and he may glean more about the company’s plans there, so stay tuned.

Palm shares Tuesday are up $1.04, or 10.3%, at $11.15.

Original post

Comments

[Economyst:]

Apple sold 6.1m first generation Iphones and not 10m in their first calendar year. They have sold a total of 21.2m Iphones (first generation and Iphone 3g).

I believe it took Apple 74 days to sell as many Iphone 3G as they did first generation Iphones.

May 26 11:37 PM

[bryanz:]

At the end of 2007 Sprint reported a standard post-paid user base of roughly 41M people. In order to sell 10M Pre smartphones (assuming zero growth which is feasible considering Sprint has been hemorrhaging customers for a while) that would mean the Pre would have to be sold to 25% of Sprint's customer base!

Now if it becomes available to many other global networks (is the current version compatible as a world phone?) then that takes some of the pressure off of Sprint to sell all 10M of the units, but still, we haven't heard hardly a peep from international carriers except your one O2 comment.

I still see PALM as a buy the rumor, sell the news type of company. And come early June I'll probably be selling the news.

May 27 02:28 AM

[Economyst:]

The current Palm Pre is a CDMA version so its not compatible with the 80% of the world which uses the GSM standard.

Palm biggest issue is not weak sales but cashflow. They have a weak balance sheet -$373m in current asstes. Estimates say the production cost of the Pre is circa $200 then I would be surprised that they shift more than 1m Pre in the first quarter.

May 28 10:41 AM