Jon Rubinstein (Palm) vs. Steve Jobs (iPhone)

2007 has been a turbulent and eventful year for Palm (PALM). A quarter of Palm was bought by Elevation Partners for $325 Million, and Jon Rubinstein, the former Apple (AAPL) executive who was behind the invention of iPod, joined as Executive Chairman.

In my analysis prior to the Elevation deal, I suggested a turnaround formula based on a comprehensive enterprise strategy or a lower-priced emerging market killer app strategy around micro-payments. You can also read my interview with Eric Benhamou in which we discussed Palm’s turnaround challenges, and Elevation’s investment thesis.

However, with Rubinstein’s introduction into the equation, I had to introduce a third opportunity for Palm, which I alluded to earlier in the Trend Radar: Device Usability piece.

Rubinstein and Jobs could not agree on the iPhone’s strategy with regard to the Keyboard. This tells me that Rubinstein has a separate, but perhaps just as compelling vision on how the keyboard needs to be incorporated into smartphones. I can’t wait to see what that vision entails!

Meanwhile, on the product-side, Palm had quite a few ups and downs. It canceled the Foleo which, as I said earlier, could not help its cause in any way. Treo 755p was delayed which affected its Q2 2008 earnings, and a chance for strong holiday sales. Centro, on the other hand, was a dark horse for Palm, and it is working hard to meet market demand.

On the financial front, Palm recently reported its financial results for Q2 fiscal 2008 that ended November 30 2007. Revenue was $349.6 million, which was a decline of 39% y-o-y and 3% q-o-q. The decline was mainly attributed to not shipping Treo 755p before the quarter ended.

I expect 2008 to be a breakthrough year for Palm. Rubinstein needs time to implement at least one product cycle, and Centro would definitely help in the interim. Palm’s new OS, which is based on Linux, is also expected in 2008.

This stock, trading around $6, is a 'Buy.' It’s just that some more beating may be in order, thereby offering a better buying opportunity. I would definitely keep an eye out on Palm.

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Comments

[marcos:]

The Palm turnaround will be 360 degrees not 180.

2008 Jan 07 04:54 AM

[marcos:]

Mitra's article is a waste of time and full of misleading 'insight'.

2008 Jan 07 04:55 AM

[In the money:]

PALM's operating margin is decreasing and they are experiencing quality control issues with their existing products. Their net income decreased over 80% since last year. The only thing I'd buy in regards to PALM are puts.

2008 Jan 08 08:35 AM

[acp6s:]

i love how everyone here who commented are and will continue to be dead wrong. Thank you mitra for your analysis. Keep buying rimm and apple shares you sheep

Jan 12 03:21 PM