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The Sound of One Palm Flopping

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The good news for Palm is that it met its second-quarter numbers Tuesday afternoon. OK, it met the estimates it made only a couple of weeks ago, which were substantially lower than its earlier guidance. That revision sent Palm’s stock tumbling 19 percent in less than a day. So the good news is really just that things didn’t get worse.

Except for one thing: According to Palm, things are getting worse.

In the current quarter, Palm is now expecting revenue of between $310 million and $320 million, below the $358 million analysts had been looking for. It sees a net loss between 14 cents and 16 cents a share, a good deal larger than analysts’ average forecast of a 4-cent loss.

But wait — maybe there’s good news in all this: Palm investors won’t have to suffer through any more depressing cycles of lower and lower financial guidance. That’s because, as Palm said in announcing its results for the quarter ended Nov. 20, “The company will suspend specific financial guidance in future quarters, but will continue to provide general business guidance and comments on industry trends.”

Forget about shooting the messenger, Palm has chosen instead to shoot the message. I suppose this can’t really be taken as good news either, unless you are a big believer that no news is good news.

How did investors react to all this news? They sent Palm’s stock down 73 cents in after-hours trading Tuesday evening. And again, this doesn’t sound too terribly bad, until you consider that Palm’s stock has traded in the single digits since paying a $9-a-share special dividend to shareholders in October. A 73-cent drop meant it Palm lost an eighth of its market value.

Palm, of course, is in the midst of a turnaround, and Wall Street is well-acquainted with its problems — the fizzle that was Foleo, the sore need for a revamped platform for its devices, the sale of a quarter of the company to Elevation Partners and the accompanying board and management overhauls.

Given all that, most investors were content to give the new Palm at least a few quarters to right itself. Even so, amid such diminished short-term expectations, the quarterly numbers it reported this week managed to disappoint. The damage was done, in part, by a delay in Palm’s Treo 755, a move which may have hurt its chances for strong holiday sales. One has to wonder if maybe this turnaround could end up taking longer than expected.

Then there’s the sustained attack from Research In Motion’s Blackberry and Apple’s iPhone. Much can be said about those formidable competitors, but I’ll let the two images below tell the story. The first is the Google Trends chart for the Palm, iPhone and Blackberry.

palm-trends.jpg

The second is a stock chart of their three respective manufacturers.

palmaaplrimm1.jpg

Turning a company around is one thing, but catching up to two of the hottest gadget makers in history is another. Palm can do it through innovation, as it has shown in the past. But going up against not just one, but two other innovation success stories will take some doing.

2 Responses to “The Sound of One Palm Flopping”

  1. Kevin Kelleher

    Samir: Yes, that was the point I was trying to make. Given its history, there’s good reason to think Palm can get back into the race. It’s just that the others in the race are already very good.

    Whether the Newton was a failure or it was simply ahead of its time, it’s safe to say Apple learned from the experience.