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By Kris Tuttle

We’ve had ongoing coverage of the turnaround at Palm (PALM), first as a “special situation” back in late 2008 and into 2009. (See Nice short squeeze on PALM! which we posted back then.) Back then we estimated the intrinsic value [IV] for Palm to be about $11. But the nature of computing IV for a turnaround story is tricky because it’s hard to forecast long-term operating margins of the reinvigorated business in the technology industry, and that creates a fairly wide variation in probable scenarios. The range we provided at the time was $6 to $16.

The current situation was detailed more completely here last March when we posted PALM: Worries become more tangible and noted that take up rates and ultimately margins were very uncertain, given the current landscape.

One point we made in the note was that for Palm to break out we needed to see other companies license the Palm WebOS. So far that hasn’t happened.

Despite our notes of caution, the market and many sell-side analysts jumped on the Palm bandwagon and pushed the stock all the way to $15 which factored in what we saw as a best-case scenario. It’s not that Palm didn’t have a good device and a strong software offering, it was that in a massive, highly rivalrous industry, they were not going to be able to generate high margins at their size.

In the past year though, the iPhone has only gotten stronger, Android has erupted on the scene and devices like the Motorola (MOT) Droid have joined the ranks of “must have” that carriers are scrambling to add to their lineups.

Even Research In Motion (RIMM) is reinvigorated and has a slew of new models and OS upgrades coming this year.

So what can Palm do now? It’s actually not too late to change to a more successful plan. It was pretty clear before that Palm simply lacked the scale and resources to go head-to-head with what has become a very high stakes game in Mobile Internet.

The key for Palm has to be WebOS and the potential for it in alternative mobile devices. Palm needs to be more than “a better iPhone” for carriers to care. The tablet space could be more open for Palm, especially thanks to WiFi and other broadband networks. We think areas like the connected car are going to be big and drive millions of units per year. That’s a space that Palm could compete in.

At the same time, Palm needs to do it with partners and stop trying to go it alone. For example what about partnering with a company like Garmin (NASDAQ:GRMN) for automobile cockpits that have both navigation, web and entertainment software?

Maybe they should buy Jolicloud? There’s also a huge set of opportunities in web-connected devices in the home, PalmOS could be a good choice for many of them. We think the user interface on Jolicloud makes it a potential winner for consumer devices.

In short, the company needs a total restart. They have quite a few resources and a decent product. Perhaps they got the dose of humility they needed to move to a new level of leadership. We are rooting for them.

Disclosure: No position

Source: What Can Palm Do to Remain Competitive?