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Town Hall Investment Research analyst David Eller asserted in a research note Wednesday morning that sales of the Pre “are continuing to slow,” and “likely will come in dramatically below” Sprint’s (S) reputed target of 1 million to 1.5 million customers for the year. Eller now sees the company selling 416,000 units in the August quarter overall, down from a previous estimate of 488,000. For the November quarter, Eller expects the company to ship 785,000 units.

The reduced estimates, Eller contends, is less a failure on the part of Palm as “overly ambitious expectations in the face of a weak retail spending environment, competition from the iPhone 3Gs” and the slowing development of the Palm rival to the Apple App Store.

Eller adds that “with the Palm’s fade,” takeover talk is also likely to evaporate. As the world realizes that the WebOS is “good but not mature enough for developers,” he adds, “Palm’s strategic value to potential acquirers diminishes.”

Eller says recent channel checks find the Pre is selling 25,000 units a week through all Sprint channels. He thinks the Pre has been hurt in part by strong competition from the Research In Motion (RIMM) BlackBerry Tour.

Meanwhile, Eller thinks Palm will start shipping the much-rumored second WebOS based phone, known as the Pixie or EOS, in November, with a price below the Pre. The analyst thinks the Pixie may be more successful at its lower price point than the Pre is in the higher end of the market.

PALM Wednesday is up 19 cents, or 1.4%, to $13.53.

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Source: Is the Palm Pre a Bust?