Despite New Products, Palm Still Lags Behind RIM

In the smartphone world, no two companies could be more different than Palm Inc. (PALM), and Waterloo, Ont.’s Research In Motion Ltd. (RIMM).

While RIM basks in the spotlight with booming sales and its ubiquitous BlackBerry brand, Palm is experiencing mounting losses, poor product offerings and layoffs affecting about 10% of the company, making this past year the worst in its history, says Citigroup’s Jim Suva.

While more details will be known once both companies report their quarterly results this week, the analyst continues to recommend RIM as his top North American handset pick.

Mr. Suva wrote,

As overall industry unit growth is set to slow, we expect investors will gravitate towards the secular growth category of smartphones, where there are two North American choices available for investors: RIM and PALM.

He sees the BlackBerry being the prime beneficiary as wireless carriers look to drive up sales and average revenue per user numbers, while Palm’s latest Centro device won’t be a “game changer” for the company.

According to Mr. Suva’s estimates, Palm will ship about 22% move of its units than in the previous year. While that may initially appear impressive, the company is competing in a market that grows at more than 50% and increased competition will likely not make Palm a profitable company until 2011.

RIMM vs. PALM 1-yr chart:

Comments

[HermanManfred]

Though Palm is doing poorly with every indication it will do even more poorly, that one year chart is simply incorrect since it does not take into account the massive cash back Palm just gave to its shareholders. That is, that dramatic drop near the end of the year is ACTUALLY a steady state from about the beginning of the year - maybe a couple percent INCREASE rather than what appears to be a dramatic decrease.

[HayekSmith]

anon... - What difference does that make versus RIMM's 100%-plus gain? Palm is getting smacked for two reasons:
1. RIMM has the advantage of baked-in corporate servers. Palm has some, but barely measurable compared to RIMM's installed base.
2. Palm HAD an advantage in usability, web-browsing and versatility. They threw that advantage away when they chased MS Windows systems and let Blackberry catch up in terms of features.

Palm should have run down the path of the iPhone, but that's 20-20 hindsight. Now, they may be too late on either front. With the market growing as fast as it is, maybe if they could FOCUS, they could produce a meaningful product contribution and return to profitability.

[User 130900]

Visiting cell phone stores during the weekend demonstrated the opposite trend. A lot of people remember the days of those initial junky blackberries and taking them back. They bought the Blackberry because they couldn't rationalize the price for their 2nd and 3rd Palms. Even moreso now because the Blackberries are problematic.

Palm's have a growing base of users who are typically more invested and into technology development while Blackberry is more for looks. Palm is already making rapid changes to suit the more superficial buyers - especially corporate purchasers. Don't forget Warren Buffet's cycle theories. This US company is one of probably 10 big tickers coming back in 2008. If we buy in 2011 the ride will be over by then because the price will be factored in. I love Blackberry but I haven't been able to talk one of my Apple loving geek friends into buying a Blackberry over a Palm. Basically the same trend when Blackberry got it's rise is now reversed in Palm's favor.

Someone tell me how that doesn't indicate where Palm is going especially with a PE of 14 compared to Rim's PE of just over 80 a few weeks back and coming down.

Short Rimm now and buy Palm in a few weeks or sooner when it starts to lift. The growth curve on Rimm is too fast too soon - it's going to correct especially given all the short interest - there's simply not enough bulls here to put on a squeeze. We can wait till it comes back between 60-80 before buying begins. But meanwhile Palm is just too tempting not to put a stake in sometime soon.

Finally - think about everyone selling Palm now to get out losses for tax reasons. Shoppers will start buying it in January because it's sooooo cheap and then there's Jim Cramer telling people to remove some of their Rimm exposure before earnings.