Palm Hangs Up On Retail Stores

Struggling smart phone maker Palm Inc. will shutter all 34 of its retail stores as the company continues to try to find a financial foothold in a sector of technology seeing unprecedented competition.

Palm shares have been under enormous pressure over the past three months, collapsing from $20 a share down today's $5 a share price. Much of that decline came from a one-time cash disbursement to shareholders after Palm entered into a strategic deal with private equity company Elevation Partners that took shares under the $10 level. Since then, the decline has only continued.

Shares rallied all day long today, up a big 11 percent in regular trading today as rumors swirled through the market of a significant reorganization imminent at the company. The web has been rife with layoff rumors at the company for weeks.

In a statement released late this afternoon, Palm confirms: "We continue to focus our company around core business initiatives and are consolidating more resources behind fewer program in order to compete most effectively and build world-class, category-defining mobile solutions. We have therefore made the decision to close our retail stores."

Pablo Perez-Fernandez at Global Crown Capital says this "is exactly what they have to do." He says headcount reduction alone could number more than 250 individuals, and millions more in operating expenses cutbacks. He says the GSM version of the new Centro will drive the company's fortunes for the foreseeable future.

"Retail for Apple is a big deal, for Palm it is an experiment," he says. "I don't think it was generating much for them."

This move, though not disclosed by the company, had already been baked into guidance Palm provided with its last earnings report. But beyond February, these numbers were likely not included. The headcount and operating expenses will be reduced significantly, though he has not yet determined exactly how much.

Palm is facing enormous competition from Research in Motion ,Apple ,Nokia and many others. In fact, just today, Nokia posted record results which could make Palm's attempts at competing with Nokia that much more difficult.

However, Perez-Fernandez says Palm is not sitting still and apparently taking significant steps to improve its profitability. He says there are signs that Palm might have finally bottomed out, and if the company can roll out Centro GSM with enough new carriers, beyond Sprint since there is no exclusive arrangement with that carrier, Palm might be poised for recovery. Perez-Fernandez maintains his $7 target on Palm shares tonight.

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