Palm's Pre Launch Has Made RBC Bullish

Palm, Inc.'s (PALM) launch of its new Pre smartphone next week has made RBC Capital Markets analyst Mike Abramsky more bullish on the stock.

“Overcoming skepticism, we believe Pre will be positively received, boosting sentiment regarding Palm’s prospects,” he said in a note to clients Wednesday.

He notes that the Pre is a different product than the iPhone or Blackberry, but offers benefits of both.

In addition, he said its Sprint (S) EV-DO network may offer a fast and stable mobile Web experience, unlike the strained 3G network of AT&T (T). Mr. Abramsky also expects other carriers will start to carry the phone by year end or early 2010.

While there is certainly a risk that an initial short supply of Pres, or glitches with the product, might frustrate consumers, RBC estimates Palm could sell 470,000 units in the first quarter, and 2.6 million by year end.

The Pre will be launched June 6, and Mr. Abramsky said investors should keep their eye on the bigger picture, rather than the Palm vs. Apple (AAPL) /RIM (RIMM) /Google (GOOG) scenario.

With sales of data-centric smartphones expected to grow from 130 million in 2008 to 400 million units by 2012, the market is big enough for multiple entrants, he said. In addition, Palm, and its competitors, will be more likely to steal share from incumbent vendors, like Motorola (MOT) and Nokia (NOK), than each other, he said.

Palm only needs 0.8% of the global handset market share, or 10 million units, by the end of 2010 [vs 2.1% at RIM and 1.1% at Apple in 2008], to yield a valuation of $25 a share, or an upside of 150%, Mr. Abramsky said.

He raised his price target for Palm to $14 a share Wednesday, from $12, and is long-term positive on Palm, and that investors should watch for any volatility in the stock during the Pre’s launch next week for a buying opportunity.

Comments

[Yagottabe K...:]

$300 to walk out the door with this guy, no advertising, limited availability, 4 hour talk time.

And, could someone relate again please,for a device that is HOW different from what's available right now?

Other than the simple fact that =Palm= is the manufacturer of this, what is otherwise exciting about the device?

May 28 06:51 AM

[Timeline St...:]

I predict a greater than even chance of Palm and/or Sprint having significant logistical or technical concerns that reduce the long term potential of this device.

Plus, the point that no one seems to be making - how exactly can Palm compete by selling a device that gains them $167 in gross margin ($299 unsubsidized revenue per device less $132 device COGS as measured by iSuppli) when the competition (Apple) gets more than $370 gross margin per device and sells 18 million per year? Furthermore, all Apple needs to do is drop the 3G 8GB iPhone to $99 and it sops up another few million units per quarter that would otherwise go to the competition, and it still makes $270 gross margin per device. Thus Apple, not Palm, is in the most defensible position here.

None of this adds up, but somehow Palm seems to be the darling stock of the moment. Unlike their earlier unwarranted bearishness with Apple, which was obviously proven foolish by financial results, the analysts somehow overlook the very basic numbers that do not support the case of Palm recovering, and they also overlook just how well-coordinated this launch will need to be considered a success.

May 28 08:47 AM

[Joseph Ramelli:]

Apps are becoming increasingly more important to success of Smartphones and thus I like to compare the launch of a new Smartphone to the launch of a gaming console. Sega Dreamcast was a great gaming console that was really ahead of its time, but developers were hesitant to jump on-board because they questioned the ability of Sega to sell enough systems to make their investment in developing games pay off. Consumers were hesitant to buy the Dreamcast because they didn't see enough "must own" games. The situation became a circular conundrum with both the developers and the console purchasers waiting for the other to step up. I see Palm Pre being in the same situation, with not many third party developed apps available come launch day.

The other thing that makes me seriously doubt Palm Pre being successful is what consumer really wants more choices in Smartphones? It is not like iPhone and Blackberry users are unsatisfied, in fact quite the opposite as both products users are fanatical with customer satisfaction rates that are off the chart. Oh and one other thing, Apple is coming out with a new iPhone soon and a major upgrade to the OS of existing iPhones that my tech savvy friend said addresses "90% of users requests."

I see the Palm Pre as going down as one of the worst highly anticipated consumer electronic flops in history and that is why we recently shorted the stock. I think that the launch will be so horrible in fact that Palm will have trouble keeping up the appearance of "shortages" for much more than a week. I am certain that the Palm Pre is a great product, but many great products throughout the years have ended up in the boneyard.

May 28 09:18 AM

[JamesApple:]

BOGOberries are waning because they are low value devices that are of little use to people. Push eMail has little value, it is becomimg a commodity feature.

BOGOberries are prime easy pickings for the new crop of appPhones like the iPhone, N97, Pre, Sony, Samsung, HTC, and a host of application and process centric devices that make rhe eMail centric BOGOberries last year's trash.

Just like the fat cat industries that perished, BOGOberries perish also as the new economies rise where applications and processes are needed, not more eMail phones.

May 28 12:32 PM

[JamesApple:]

iPhone does not rely on Apple AppStore, Pre does, as Pre sychronizes with iTunes now, iMac and Apple servers sales should go up through the roof. Apple and Palm forms a natural partnership thru iTunes as BOGOberry shrinks further into oblivion. There comes a point where blind devotion to BOGOberries marks a person as an outcast and a moron unfit for jobs.

May 28 12:54 PM

[CGP:]

<<And, could someone relate again please,for a device that is HOW different from what's available right now?>>
- Can only go by the buzz, but seems like a lot of informed tech people love it, by inference I would say Palms' doing something right

<<how exactly can Palm compete>>
- Kind of ridiculous to argue on margins now, for Palm the issue is execution and cash flow, if they hit on those two we may well have a marathon to run and then way, way down the line margins might be an issue
<<Palm only needs 0.8% of the global handset market share>>

<<Sega Dreamcast>>
- How can you use this as an comparison? Cartridges for gaming consoles have big manufacturing & distribution costs compared to software and are useless on another gaming system. From what I've read, apps can be fairly easily ported from other platforms to WebOS - but let's not forget over 90% of iApps are only used once, core apps shipped with the device are key and from what I've seen Palm is has that.

<<The other thing that makes me seriously doubt Palm Pre being successful is what consumer really wants more choices in Smartphones?>>
- Did you really say that? Do you know the reason why you even heard about the Pre? Are you Henry Ford? - The consumer can get any color he wants as long as it's black. Have you seen projections for that segments' growth?

<>
- shorts may very well have their opportunities here, take them while you can (of course shorts like to talk things down too...fairly or not).

May 28 01:56 PM

[JamesApple:]

It is important to know that BOGOberries are NOT smartphones. Why? Because you have to command the BOGOberries in everything you want BOGOberries to do through keystrokes, menus, options, function keys, shortcuts etc. Working with BOGOberries remind me of cavemen chiseling at stones.

Try the iPhone, you will feel civilized again.

May 29 10:13 AM

[KenC:]

10M units is optimistic, since this is not a world phone, and it's on Sprint for 6 months before being added to Verizon. I think 4 to 5M units would be far more realistic.

May 29 01:41 PM