Palm: How Long Before Company's Future Turns Bright?

Palm Treo
Palm Treo

Talk about a tale of two companies: The market's punishmenton Palm was swift and harsh and it comes just a day ahead of what should be decidedly better news from another smart phone maker, Research in Motion .

But just a few final words on Palm today as reaction continues to flow in following the company's very disappointing earnings news Tuesday. Global Crown Capital's Pablo Perez-Fernandez, who remains one of the Street's best voices in covering the wireless world, pulls no punches in his analysis this morning.

"We are suggesting that (former Apple executive Jon) Rubenstein assume the role of CEO and that Mr. Colligan be replaced by a turnaround COO to help Mr. Rubenstein with the day-to-day operations and to drive efficiency and productivity gains," writes Perez-Fernandez.

He is the first analyst that I have seen to directly call for Colligan's removal as CEO. The report goes on to say Colligan has had very little success turning companies around; that his efforts as Handspring's COO ended in near bankruptcy with the company eventually selling itself to Palm and borrowing money so it could remain in operation through the close of that deal.

Perez-Fernandez and I have talked at length over the past several months about the challenges Palm faces. He says today that the company's guidance is "much worse than expected," that his financial model--already pretty bleak--is "clearly too aggressive at this point. The same thinking applies to our price target."

Even on the call yesterday, Ed Colligan sang the praises of Jon Rubenstein, calling his input on the final stages of the new Centro, and his overall guidance, invaluable. Of course, Rubenstein's efforts at Apple were also key to the success of iPod. It's clear that in his report this morning, Perez-Fernandez isn't merely calling for Colligan's departure; it would seem he's also building Rubenstein's ascension to the CEO post into his financial model for calendar 2009.

All of this puts even more uncertainty over Palm's future. But a chorus of change usually begins with one voice. Perez-Fernandez says, "Palm's problems...are, in our opinion, the direct result of management's failure over the past two years to realize that the competition was catching up rapidly."

The question of course is how long Elevation Partners, Palm's single biggest investor controlling 27 percent of the outstanding shares, will listen before taking any action. Colligan reiterated on the conference call yesterday that Elevation clearly has a long-term outlook and is letting this turnaround take its course. With more to lose than anyone else, you just have to wonder how long that patience will last.

Questions? Comments?