Palm Slashes Mobile Platforms: What Exactly Is Its Problem?

While multiple mobile platforms allow a firm to serve different target groups and also to hedge their bets, they are also expensive to support and defocus a company, particularly one that’s struggling.

Eleven months ago, in the face of a $400m quarterly loss, Motorola (MOT) announced it was cutting from six (or seven) platforms down to three: Android, Windows Mobile, and its own proprietary platform.

Now it’s Palm’s (PALM) turn to slash its platforms, from three down to one. In the earnings call that confirmed its widening loss ($161m on sales of $68m), on Thursday, CEO Jon Rubinstein made clear that both Windows Mobile and (as expected) Palm OS are history:

Due to [the] importance of webOS to our overall strategy, we've made the decision to dedicate all future development resources to the evolution of webOS. Which means that going forward, our roadmap will include only Palm webOS-based devices.

(Moconews has the quote slightly differently: “So while there are still Centros and Treo Pros, our future engineering efforts are based on webOS.”)

That seems to suggest a US-only, consumer-only focus — and it’s a lot of eggs in the webOS basket. So far, Palm won’t say how many of the 810,000 phones sold last quarter were the Pre, but speculation puts it at the 400,000-500,000 range — a good weekend’s sales for the iPhone. The predictions of a Palm Pre blowout by investor Roger McNamee appear to have been overly optimistic.

Is Palm’s problem the product? (Not if you believe the reviews). The immature ecosystem? Its limited marketing clout to launch a new platform? The fact that it’s only on a weak carrier?

Only the latter is easily fixed, but rumor has it that the webOS phone for Verizon (VZ) is not until 2010. Lord knows, Verizon desperately needs better phones, as this Wired story makes clear:

"They lack the star products that their competitors have," says Avi Greengart, research director, consumer devices for Current Analysis. "They recognize they don't have compelling devices right now but feel they can make up for it with network quality."
…
"Verizon doesn't have too many options," says Michael Mace, a former executive with Palm and Apple (AAPL) and currently a principal at [a] strategy and marketing consulting firm called Rubicon Consulting.

"They can't get the iPhone right now and they can't take Nokia (NOK) devices and start promoting them. All they can do is push the BlackBerry as hard as they can and hope for a new Motorola phone."

The Wired story (also available on CNN) notes that Verizon is promoting a HTC Windows Mobile phone at $200, less than the $350 that Sprint (S) and T-Mobile charge.

I realize Palm is resource constrained, but clearly beating Motorola to Verizon would make a huge difference to the bottom line. Is it that Palm can’t ship another phone in time? Or is it that the 2009 exclusive that it gave to Sprint was for the entire webOS and not just the Palm Pre?

Either way, there is not a lot of runway to turn things around.

Disclosure: none.

Comments

[TopViet:]

It's a right choice. Customers like iPhone OS (Apple) or Android (Google).

Sep 20 06:22 PM

[User 488814:]

I really don't understand Seeking Alpha's obsession with dumping on PALM. I've yet to see something that wasn't critical to an almost absurd degree. As a company, the smallest independent smartphone maker by a fair margin, it has achieved remarkable things over its relatively short lifespan. As a stock, it's had its ups and downs, but if you've listened closely and acted accordingly, it has made you a fair bit of money.

Sep 20 08:40 PM

[Philip Fisher:]

Professor West, unfortunately, you are wrong again about Palm. Companies get into trouble because they try to do too much. Just ask the late David Packard, who wrote that more companies die from indigestion than starvation. For a small company like Palm, it can ill afford to lose focus. Rubenstein is doing th right thing by putting all Palm's resources behind WebOS, which, IMHO, is the most compelling mobile OS on the market today.

Sep 20 08:45 PM

[CowBell:]

Palm is a very forward thinking company. They hinted at a very useful product in the past, the folio, but no one was ready for it and it was not implemented to its full potential.
With mobile processors being as fast as they are, a winning product will be a cheap laptop surrogate (~$200), nothing more than a screen/keyboard/mouse packaged as a laptop that docks a phone internally through a port on the side, using the phones processor and memory. In other words, all software runs on the phone.
If anyone of the phone makers can accomplish this with their OS/hardware interface, at least the business market will jump at it.

Sep 20 11:23 PM

[HereAndNow:]

If it is not doing so already, Palm should actively participate in the implementation of HTML5 & WebGL in WebKit (upon which the WebOS browser is based).

Virtually all "native" smartphone browsers are WebKit based (Blackberry soon, following RIM's acquisition of Torch Mobile). Extensive HTML5 & WebGL support in WebKit will enable developers to build powerful, cross-platform web apps, with offline support, 3D graphics acceleration, etc. This will, of course, benefit ALL smartphone platforms, but it will be especially beneficial to platforms that currently have fewer apps.

Sep 21 01:34 AM

[User 488900:]

OMG, this guy clearly did not do any kind of calculation on Palm's
earning report. It is widely known palm earns $339M for pre
and $22M for treo/centro product. He can read yahoo message
if he cannot or feel lazy to do a calculation.

Sep 21 01:35 AM

[mollytjm:]

the Treo was ahead of its time...unfortunately, having a good idea and then not going forward for years, isn't a good formula for tech companies. When Apple had a MAC OS they still went forward with the iPod (to criticism); when they were successful with that, they still went forward (with dire criticism) with the iPhone. Obviously they took risks.
The problem for Palm isn't that it won't have good ideas, but does it have the $$$ to risk a big entry with a new product? Palm isn't a threat to Apple and I'm not interested in seeing Palm fail. But I'm financially conservative and I don't see it as a long term investment right now. I'm long APPL because they have the $$$, no debt and continue to innovate and capture market share. For me, Palm has a long way to go.

Sep 21 10:09 AM

[CGP:]

Having commented on a previous blog by Mr. West, I'd say he's a much less well informed Roger McNamee, stirring the pot for reaction and attention (mainly for promotion). I got snagged by the headline again.....

Why would dropping legacy mobile OS's be an issue? I don't remember any recent articles questioning MSFT for dropping support for Win 3.11 or Win 95. How is this an US only strategy?????? They won't be selling WebOS internationally?

IMHO Palm has planned for WebOS to be available in many form factors and across many "platforms"; the question is, whatever form or entity they transition into, will they have enough cash flow? - focus shouldn't be the issue.

Sep 21 11:07 AM

[CGP:]

btw I believe Palm made a comment that they will be targeting enterprise markets on their last earnings call....

....also, I'm a VZW customer laying in the weeds for the rollout of LTE and hopefully a compatible Palm product, hear that PALM? does "sweet spot" mean anything to you? (WiMax may also be the answer)....

Sep 21 11:16 AM

[swiggs:]

Here is Palm's prolem: They (management, particularly Rubenstein) don't understand the mobile business. Look, the Pre is a fine product, no doubt one of the better smartphones out there. However, look at Rubinstein's history at Apple - he is a consumer product guy. This means he want to build the best product and expects people to flock to it (like Apple did with the iPhone). Problem is the Pre was not a revolutionary product like the iPhone is. One needs to understand the role that carriers play in the device business, notwithstanding the relationships and infrastructure for an international launch (for example, Palm has little brand in Europe).

Sep 21 01:36 PM

[User 489364:]

Palm has missed every emerging market they entered. Just look at Palm's history. It was the first vendor to enter the personal productivity systems with Palm Pilot but lost the market to better products such as Compaq's (now HP) iPAQ. Again, it was one of the first vendor to get into the smart phone market. But other than Sprint, no one carried Palm's smart phones. They weren't great. They missed the market to RIM's Blackberry. Now, head to head with a much better rival Apple. Who will buy a Plam Pre when there are great looking products from Apple. Really. I don't buy Jim Cramer's argument that the smart phone market can accomodate more than Apple and there is a place for Palm. First of all, this market is going to grow. Do you think that all the other existing mobile phone and other consumer products vendors are going to watch this market from the sidelines? Hardly. Pam may enjoy some early entry sucess but wait for other vendors with more cash and execution capability to enter the market. No way, Sorry Palm.

Sep 21 09:15 PM

[Aryamehr:]

Palm is here and has a long way to go before anyone can write it off. Great first iteration. It beats Apple's first and second iteration and can go head to head with the iPhone GS. The Pre, with 8G's can Multifunction, has a Qwerty keyboard, has a Flash on its camera, allows for Change of Battery and has numerous capabilities still lacking on the iPhone. The iPhone's 3rd iteration, the GS, introduced "cut & paste," enhanced its camera to 3mpixels, and improved its battery, all of which came with the Pre' first iteration, ahead of the iPhone's 3GS. To compensate for their lack of the Pre's other capabilities, they added video, extra memory and a compass in case you got lost in the Amazon. Given that the Pre has only been around for just over 3 months and the iPhone over 30 months, I have to give higher marks to the Palm Pre. Now lets see what Rubenstein and Company will come up with in their next iteration.

Sep 21 10:54 PM

[swiggs:]

i am curious: when did you purchase your current device? lte won't rollout for months and even then the devices on that architechture will probably be just ok at first. its always a bit of a chicken and egg game between carriers and vendors, especially when migrating to a new techonology. on the one hand, vendors dont want to make devices for a new technology unless there is a critical mass of subscribers that will enable them some scale, while on the other hand without compelling devices carriers are less likely to push their new technology and thus give smaller subsidies


On Sep 21 11:16 AM CGP wrote:

> btw I believe Palm made a comment that they will be targeting enterprise
> markets on their last earnings call....
>
> ....also, I'm a VZW customer laying in the weeds for the rollout
> of LTE and hopefully a compatible Palm product, hear that PALM? does
> "sweet spot" mean anything to you? (WiMax may also be the answer)....

Sep 22 03:20 PM

[CGP:]

@swiggs
Still rocking a 2yo Moto Razr 3M! Very dissappointed w/BB web speed having tried other peoples'; haven't tried iPhone yet but in no rush since hearing about all their carrier traffic issues and other assorted dealbreakers. Since a data plan is a big jump in cost I'm just going to watch and wait - VZ inertia.

From what I understand, LTE\WiMax will mean mobile broadband speeds (vs. 3G 56k modem speeds) and is a backroom issue eqpt. wise for the carriers. I think everybody on the industry side understands the implications of 4G and will be basically positioned and ready when there is a tipping point of available coverage. For consumers I don't think there is a big deal interface wise because all the device makers have to do is integrate a chip that will enable 4G reception/transmission - if we had 4G today the "only" difference would be faster web browsing (see 56k vs. broadband).

Oct 01 04:33 AM

[Kris Tuttle:]

Palm needs to put all their wood behind the WebOS arrow. They probably would have done it late in 2008 but would have lost what few sales of older generation devices they did make.

The biggest issue Palm faces now is lack of resources. Going against Apple, Research in Motion, Motorola/Google to name a few is just not going to generate high operating margins.

They don't need another $100M, they need $1B. The only way to do it is either with a service-provider partner like Verizon or a system vendor like HP or Dell.

Unfortunately that looks risky and potentially embarrassing so the odds don't seem very good. Palm has run up quite a bit so hard to buy here, plus there is a already a big short position so it's similarly hard to sell it or be short here.

Oct 06 05:06 AM

[sildenafil:]

Having commented on a previous blog by Mr. West, I'd say he's a much less well informed Roger McNamee, stirring the pot for reaction and attention (mainly for promotion). I got snagged by the headline again.....

Oct 28 05:36 AM