Palm Readings Don't Bode Well for PDA Pioneer

by: Research Recap

With a number of analysts lowering their price targets for Palm (PALM) to zero, the once pioneering PDA company is on the endangered companies list after being eclipsed by Research in Motion (RIM), Apple (NASDAQ:AAPL) and now Google (NASDAQ:GOOG) in the smartphone race.

Seeing the writing on the wall, analysts have been weighing in on Palm’s potential exit options. The company lost $18.5 million in the third quarter and on March 19 had a weak sales outlook for the fourth quarter.

Shares dropped Thursday after Berenberg Bank lowered its price target for Palm shares from $8 to zero. (Bloomberg) Analysts said Palm’s “equity value could be worthless.”

Berenberg joined a string of other analysts lowering their price targets for Palm. Morgan Joseph & Co. analyst Ilya Grozovsky lowered her estimate of Palm shares to $0, calling the manufacturer’s difficulties “an accelerating death spiral.”

Canaccord Adams analyst Peter Misek placed Palm’s price target at the $0 mark, predicting, “Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support.” (Schaeffer’s Investment Research)

Whitney Tilson, managing partner of T2 Partners, believes “There is a 90% chance that they go bankrupt or get acquired within a year.” (MarketWatch)

Business Insider’s Gregor Schauer said the Pre smartphone maker’s reported earnings effectively “hung a bigger for-sale-sign on the company.” He pondered who might acquire Palm, pegging Nokia (NYSE:NOK), Motorola (MOT), and HTC (HTC) as the most likely candidates. Last week, Schauer noted that Palm’s WebOS could be an attractive asset for a buyer.

Sramana Mitra at adds HP (NYSE:HPQ) and Dell (NASDAQ:DELL) to the list of potential acquirers, noting that ” Palm could give HP the necessary technology and innovative energy to surge forward in convergence devices.”

BMO Capital analyst Tim Long believes the company’s stock value already reflects its significant challenges. He maintained a $4 price target for Palm, and increased his rating from Underperform to Market Perform. He wrote, “The end game for Palm is most likely to combine with a large OEM that wants to own its operating system and can leverage its brand and distribution platform.” (Tech Trader Daily)

JP Morgan Analyst Rod Hall maintained a neutral view on Palm in a report today, noting the company’s recent troubles in selling its latest smartphones. He said the company’s fate likely rests on introducing another hit product and improving its distribution.(Marketwatch). In what he calls “the year of the mobile computer,” Hall said he prefers companies like Apple, Research In Motion and Nokia who are taking a “vertically integrated” approach to the business.

Despite the failure of Palm’s Pre smartphone to take off, 24/7 Wall St doesn’t give much credence to the wild and very weakly sourced rumor on Slashdot that Palm could abandon its WebOS for Google’s Android OS. Wired’s Charlie Sorrel said that “Despite the rather suspicious origins of this information, it does seem like one of the only ways out for Palm.” However, he also noted that “In swapping to Android, Palm would be throwing out the one unique thing that it has to sell.”

While the omens don’t look good for Palm, at least one of its funders, Bono, can still go back to his day (or night) job.

Palm, Inc. Q3 2010 Earnings Conference Call Summary