Palm's Future Success Remains Questionable

Palm Inc. (PALM), a smartphone company, will announce its 4th quarter fiscal year 2009 financial results on Thursday, June 25^th, after 4 p.m ET/1 p.m PT. The company will then hold a conference call for the public at 4:30 p.m.

Analysts expect the company to report -$0.64 cents earnings per share.

The company ended its 3^rd quarter with $90,624 in revenue compared to the same quarter in the previous year with $312,144, in thousands (see Q3 conference call transcript).

This is not surprising considering the company has been losing revenue for several quarters now:

We expect our handheld business to continue to decline through fiscal year 2009 and future years as a result of demand shifting to voice/data converged products and the maturity of our handheld products.

The company had $272,107 in Cash and Cash Equivalents, Short-term Investments and Accounts Receivable compared to $342,443, in thousands, in immediate liabilities. They also had $391,000, in thousands, in long term debt.

The company is losing its market share in the U.S and abroad:

Net device units shipped in the three months ended February 28, 2009 decreased 76% internationally and 61% in the United States compared to the year ago period

The company summarized their financial condition in their own terms, as of the end of their 3^rd quarter:

We anticipate our balances of cash, cash equivalents and short-term investments of $219.4 million as of February 28, 2009 will satisfy our anticipated operating cash requirements and debt service or repayment obligations for at least the next 12 months. Although we believe that we can meet our liquidity needs for at least the next 12 months, we have had net losses since the beginning of fiscal year 2008 and our actual level of losses for the last four fiscal quarters were unanticipated 12 months ago which have resulted in decreases in our cash, cash equivalents and short-term investment balances during the last four quarters. We are experiencing reduced demand for our maturing legacy smartphone products and a challenging economic environment and we expect further declining revenues and continued margin pressure from our legacy product lines. Based on our current forecast, we do not anticipate any short-term or long-term cash deficiencies. If we fail to meet our operating forecast or market conditions negatively affect our cash flows, we may be required to seek additional funding. If we seek additional funding, adequate funds may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition.

Nevertheless, the company has had some positive news since their last quarter. They recently released their highly anticipated smartphone called the Palm Pre which has been widely popular among consumers and they reportedly sold 50,000 units in the first weekend.

Palm Inc’s CEO of 16 years stepped down and was replaced by Jon Rubenstein. Rubenstein worked at Apple Inc. (AAPL) for many years and has been credited as being instrumental to the development of the iPod. He was instrumental in the development of the current Palm platform, the WebOS, and the Palm Pre.

Recap:

• Dubious financial health
• Declining revenue
• Decreased Market Share
• New Product, resulting in renewed interest in the company
• New CEO, years of experience in the technological field, brings new direction to the helm

The company has certainly garnered its fair share of positive media recently, but the company’s future and success still remains in question. It faces fordable competition from Apple Inc’s iPhone and Research in Motion’s Blackberry line, as well as a slumping economy.

It would be best to continue monitoring the company and wait for some hard evidence that shows its progress before investing in the company.

Original Post

Comments

[Stockpickin...:]

perhaps the short postions on PALM are one of the reasons it stays up as far as PPS goes. Earnings maybe the time to sell the news?

Jun 24 08:12 AM

[The Lonely ...:]

If someone is already in on the stock, its really up to them to sell or not on earnings results, but if their not in yet, it would be best for them to wait. The stock is up based on hype, not numbers, those will come soon enough.

Jun 24 04:01 PM

[Economyst:]

The cold hard numbers do not look good for Palm but the hype or interest in the Pre does indicate that Palm is not ouf the murky waters but at least knows a path to get there.

The Shorts expected Palm stock to tank after Apple new Iphone 3GS announcement. However the new Iphone release was underwhelming because so many had expected so much that the internal changes - though positive were just less than what many had hoped for. The strong sales figures owe more to people putting off their purcahse of the Iphone in preceeding weeks and months in anticipation of the new release.

It's somewhat ironic that Palm has created so much interest in the Pre which has propelled its share price to a level where many investors are put off. However its weak financials could do with further investors. Palm has become a victim of it's own hype. They needed to create interest to sell the phone but a side effect of this has been speculators or naive investors piling into the stock.

Jun 24 05:42 PM

[The Lonely ...:]

Completely agree. And the truth behind the new iPhone 3GS isn't the hardware but the software. There are those who are just holding on to their old iPhone's and just upgrading to the 3.0 OS, because there really is no reason to buy the new 3GS. Apple sort of failed expectations on the hardware side.

Jun 24 06:44 PM