It's not often that a company like Palm enjoys "bellwether" status, but such is the unusual result of these crazy times on Wall Street where investors are breathlessly searching for any kind of sign post they can find.
And after the bell later today, joining Oraclewhich also reports earnings, will be Palm. Not the biggest player in wireless by any stretch, but a player enjoying fairly significant momentum these last couple of months and one that will offer some visibility into the sector with its outlook.
And its news comes a week ahead of Research in Motion'searnings and days before Googleand HTC unveil the new, "Dream" smart phone at an event in New York City Tuesday.
There are a couple of schools of thought on Wall Street right now surrounding Palm: Consensus right now is for an 18 cent loss on $323 million in revenue. Mike Abramsky at RBC is a little more optimistic anticipating a 15 cent loss on $332 million. He's looking for just over a million smart phones shipped, 870,000 of which will be the low-margin, inexpensive Centros that have been selling so well. And that's the ongoing problem for Palm. Low price means low margin which means low profit. To try to compete with the higher end smart phones from Research in Motion and even Apple's iPhone, Palm released the new Treo Pro which will retail, unlocked, for a staggering $549. It's not clear that's going to be a successful strategy.
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That isn't stopping some analysts from suggesting that Palm has turned the corner, that Centro has tapped a part of the market that was largely ignored until Palm came along. Moreover, Palm CEO Ed Colligan has routinely made the point to me that the company is in the midst of a longer-term turnaround and already seeing the fruits of the enormous labor that's gone into it. The smart phone market attracts a disproportionate amount of headlines, given how small this sector still is when you consider the billion handsets that'll sell worldwide this year.
Colligan makes the point that as soon as consumers see the capabilities of a smart phone, they'll turn their backs on dumb handsets that dominate the market today. That means a wildly huge upgrade cycle for both consumers and businesses, and right now, Palm's the only one playing in the sector with such an inexpensive, but highly capable device.
The big unknown for Palm? Will it ever get the next generation Palm operating system out the door? It's now expected at the end of fiscal 2009. That too could become a catalyst.
Pacific Crest maintains its "outperform" on these shares, raising its fiscal 2009 estimates on better than expected summer Treo refreshes, now looking for full year fiscal 2009 revenue of $1.29 billion and a 54 cent a share loss against earlier projections of $1.25 billion in revenue and a loss per share of 57 cents. Pac Crest doesn't expect any meaningful guidance today so investors will have to read the tea leaves.
Palm may never be a RIMM, or Nokia, or Apple. But it doesn't need to be. With such massive growth expected in wireless and smart phones, as long as the company keeps executing, as it has recently, there are plenty of scraps left over in this sector to keep Palm growing, and keep this momentum going.
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