It must be Christmas, as the guys at Elevation Partners are feeling generous enough to invest another $100 million into beleaguered smartphone maker Palm (s PALM), which has been slip-sliding away for a very long time. Elevation Partners, a Menlo Park, Calif.-based private equity firm headed by Roger McNamee, previously invested $325 million in Palm (for about 25 percent of the company) and brought in new management — many of them former Apple (s aapl) executives — to save what was once an iconic brand and chief instigator of the smartphone revolution.
From the outside, none of those attempts seem to be working. Last week, the company reported a net loss of $506.2 million for its second quarter of fiscal 2009. Sales sank to $171 million and its shipments decreased 13 percent. In American Football terms, they have to feel like the Arizona Cardinals at the end of last night’s 47-7 drubbing by the New England Patriots. All this negativity was masked by the euphoria around the upcoming operating system, Nova, which is going to be released at CES this January. There are more handsets on the way and they are hoping to go after the “fat middle” of the smartphone market.
There are some things Palm can bank on: It has a big user base — between 7 and 8 million people are using Treos and are actually pretty thrilled with the aging devices; they can provide a good base on which to grow the company. In addition, there are a large number of application developers who continue to support the platform.
Management’s remarks encouraged the markets, which bid up the stock on Friday. No one seemed to notice that it’s almost a year late, and that we have a global meltdown with handset (including smartphone) sales sinking faster than a brick in water. Palm, like most vendors, is at the mercy of the carriers, which will ultimately decide the devices they want to push to the end users.
Given how closely AT&T (s T) is associated with Apple (neither can live without theother) and T-Mobile’s partnership with HTC, Palm has its work cut out for it. There is already talk of the new Google Phones, and I’m pretty sure Apple isn’t going to sit still and wait for Palm to stage a comeback.
My friend Pip Coburn often reminds me of Warren Buffett’s now famous adage: Turnarounds seldom turn.
Terms of the deal
- Elevation will acquire newly issued Series C preferred stock that is convertible into Palm common stock at a price of $3.25 per share, a 31 percent premium to the closing price of Palm common stock on Dec. 19, 2008. The Series C preferred stock carries a 0 percent dividend rate.
- Elevation will also receive warrants to acquire 7 million shares of Palm common stock at the same price.
- Prior to March 31, 2009, Palm may elect to cause Elevation to sell up to $49 million of this new investment to other investors on the same or better terms than on which Elevation invested.
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