Palm May Introduce Ultra-Mobile PC

Hopes that someone will buy Palm (PALM) continue to fade, and the stock is reacting accordingly. Tuesday, Palm held a meeting with analysts. One of the big takeaways for the attendees was that the company gave no hint that a deal could be in the works.

There was “no direction on any impending takeover,” asserted Merrill Lynch’s Vivek Arya. “There was a mild air of disappointment that the subject of M&A was entirely avoided,” adds Citigroup’s Daryl Armstrong. “Not what speculators were looking for,” writes ThinkEquity’s Jonathan Hoopes.

The overall reaction was equally muted. The company hinted at new products, but didn’t unveil anything. Note in particular Arya’s discussion of Palm’s possible introduction next month of an Ultra-Mobile PC. A brief rundown:

Jeff Kvaal, Lehman: Palm did not offer any response to the M&A discussion or present specifics of its 2007 device roadmap other than its Linux OS would launch. Reading between the lines suggests two new form factors in 2007 and several new models in the current form factor.

Daryl Armstrong, Citigroup: Palm’s analyst meeting provided insight into their longer-term strategy but also exposed their vulnerabilities in the current environment. With the expectations of a near-term take-out fading, we see insufficient upside potential to recommend the name for purchase.

Jonathan Hoopes, ThinkEquity: We like the direction the company is heading. We believe that Palm’s investment in engineering, its developing in a Linux kernel, and its Asia expansion will be drivers for growth over the next few years. That said, speculators were likely disappointed by the lack of near-term and actionable catalysts.

Maynard Um, UBS: While M&A speculation was on many investors’ mind, management set the tone early by saying it would not address this topic. From a fundamental perspective, we view Palm’s strategy to reduce costs and improve time to market… as sound. While M&A possible, share price weakness yesterday likely [was] driven by lack of discussion, and we believe time is likely to further test conviction.

Michael Ounjian, Credit Suisse: We continue to expect Palm to benefit from rapid smartphone market growth and international expansion; however, we expect increasing competition to continue to adversely affect Palm’s market share and operating margins.

Vivek Arya, Merrill Lynch: Palm could launch new products in late May, but we do not believe the products will be revolutionary enough to impact estimates. Palm founder Jeff Hawkins is scheduled to deliver a speech at [the] “D: All Things Digital” conference hosted by the Wall Street Journal [which of course is owned by Dow Jones, which also publishes this blog] from May 29-31, 2007. While details of Jeff’s speech are unknown, we believe he could announce a new Palm product. Given Palm’s traditional expertise in mobile computing, we believe the new product could be an Ultra Mobile PC - essentially a small ultra-portable laptop with wireless capability. While new products create excitement, we are skeptical they will impact any estimates given the niche UMPC market, and Palm’s scale disadvantages compared to existing UMPC vendors like Sony (SNE), Samsung, HTC and others.

Palm yesterday was off 19 cents at $16.72. As recently as March 21, the stock closed at $19.45 on frenzied speculation that the company might be acquired by Motorola (MOT), or Nokia (NOK) or a private equity investor. Nonetheless, the stock is still up 19% for the year to date.

Comments

[steve99fox:]

Excellent work. Easy to understand.
Get iphone

2007 Apr 12 05:13 AM

[Tom B:]

They can't be serious????

2007 Apr 12 08:54 AM