Friday, February 26, 2010

Palm Updates Guidance

Earlier today, Plam issued a new guidance for Q3FY10, stating that the revenues for the smartphone maker will be below previous estimates.

SUNNYVALE, Calif., Feb 25, 2010 (BUSINESS WIRE) -- Palm, Inc. (NASDAQ:PALM) today indicated that it expects that revenues for the third quarter of fiscal year 2010 will be in the range of $285 million to $310 million on a GAAP basis and in the range of $300 million to $320 million on a non-GAAP basis.1 Revenues for the quarter and full year are being impacted by slower than expected consumer adoption of the company's products that has resulted in lower than expected order volumes from carriers and the deferral of orders to future periods. Accordingly, Palm expects fiscal year 2010 revenues to be well below its previously forecasted range of $1.6 billion to $1.8 billion. The company will provide more detail on its financial results during Palm's third-quarter financial results conference call currently scheduled for Thursday, March 18.
"Palm webOS is recognized as a groundbreaking platform that enables one of the best smartphone experiences available today, and our work to evolve the platform and bring industry-leading technology to market continues. However, driving broad consumer adoption of Palm products is taking longer than we anticipated," said Jon Rubinstein, chairman and chief executive officer. "Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products."

The Company expects to close its third fiscal quarter with a cash, cash equivalents and short-term investments balance in excess of $500 million.


Analysis

This can't be good news for Palm, who has been struggling over the last two years to transform their business both from a technology standpoint and a revenue standpoint. Over the last three years, Palm completely changed their management team, infused the company with a number of tech company A-list talent, and completely revamped their smartphone and mobile operating system software.

However, many people where critical of what was pent up demand for the original Palm Pre smartphone which when on sale with exclusive launch partner, Sprint, back on June 6, 2009. Many customers on Verizon, which only recently began selling the Pre Plus and Pixi Plus, and AT&T simply had no way of getting new Palm hardware except to jump carriers which has become an extremely costly proposition for customers in today's depressed economy.

I personally believe that Palm took too long to bring the Pre to Verizon as the Pre Plus and that their six month exclusive agreement with Sprint went on too long. It didn't help that the second Palm webOS smartphone, the Pixi, also started out life on Sprint as an exclusive. Customers on AT&T and T-Mobile still don't have access to a branded Palm smartphone.

Lastly, Palm is fighting an uphill battle against white hot brands like the Apple iPhone 3G S, the Motorola Droid, and the BlackBerry Storm2. Palm is going to have to get more phones out to more carriers and into the hands of customers sooner rather than later. That means Palm should pick up the pack and get the distribution deal with AT&T in place and grow the regions around the world that have access to Palm's products.

It looks like FY2011 is going to continue to be difficult for Palm. Palm's stock closed the day at $6.53 with a number of investment firms changing their buy ratings to sell.

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