This has been an interesting quarter for Palm , to say the least. On the one hand, the launch of the Palm Pre set tongues a waggin' even as momentum seemed to be tepid, or at least beginning to settle down after the whirlwind the company enjoyed the first few weeks the phone was available.
So here we are, the day Palm prepares to release its first quarter earnings and we're left to wonder just how big an impact the Pre is really having, and how much traction the device is gaining in the marketplace. Remember that the last time Palm reported earnings, the Pre had just been launched and analysts really couldn't see how big a seller this thing really was. Worse, Palm didn't break out any individual unit numbers the way, say, Apple does with its iPhone figures.
The bigger question for Palm, and its investors that keep driving these shares higher, isn't what Palm has seen these past few months of Pre availability, but what is realistically anticipated over the next few months. That alone should go a long way toward determining whether the stratospheric rise in Palm shares was actually worth it.
Some analysts indeed remain optimistic that Pre is indeed worth this run: Mike Abramsky at RBC Capital expects a 15 cent a share loss on $318 million in revenue, both categories markedly better than Street expectations of a 25-cent a share loss and $305 million in revenue. (Palm doesn't offer guidance.) Abramsky also expects Pre sell-through of 519,000 units, and a total sell-through of 700,000 to 800,000 units. His research shows that sales at Sprint , Bell , BestBuy and Radioshack "indicate stable sales, low returns and 50 percent to 75 percent upgraders." He concedes that it's just too early to gauge the effect of the recent $50 price cut, but expects "positive management commentary regarding future products…"
Good points all, but there are still some troubling trends for this company, beginning with that price cut. If the Pre was doing as well as the company thought, I'd think you'd want to build on that by keeping prices stable - and margins high and not reducing the cost of the device. Further, Palm released the Pixi, the Pre's smaller, lighter cousin, in the vortex of a pending event from rival Apple Inc., so the coverage the newcomer got was essentially eclipsed by a stuffed news cycle. It was such a curious release strategy and follows a bizarre marketing strategy that I've detailed - and questioned - before. If Palm is striving, or struggling, to increase brand awareness, it's certainly not coming up with an effective way to do it.
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And the company isn't getting any creative help from its carrier partner, either. There was the promo snafu recently that had Sprint at once offering a $100 credit to customers who switched to the Pre from another carrier, but then soon thereafter pulling the offer, calling it a computer system glitch that inadvertently posted the deal on the Sprint website.
And then there's the ongoing competitive threats from the likes of Apple Inc., Research in Motion , the G-phones from Googleand T-Mobile , and now most recently the Cliq from Motorola . I have written before that Palm might have compelling technology, but if it can't compete effectively in the marketplace, it'll simply get passed over. Abramsky brings up many of these concerns in his note, but brushes past them by reiterating his "outperform" on the stock and a $25 target. (Compare that target to Credit Suisse's downgrade last week to "neutral" and a target that plunged from $18 to $12 with the firm disappointed that Pixi too will be a Sprint exclusive.)
Meantime, I just don't see the reason for the euphoria. I don't. Maybe things change when the Pre becomes available on Verizon some time next year. Or when the Pixi see some success in the marketplace. But both those things are still a ways away, and until then, Palm has to continue to execute technically and financially. These shares have been on a tear and gotten way ahead of themselves. I don't question that Palm may some day indeed become a success story. I just question "when" that some day might be? And the real level of that success. This is still a company mired in red ink, and while the losses are beginning to reverse, they're still losses.
The turnaround still seems much later than sooner even though the stock isn't merely suggesting the opposite, but screaming it from the top of its lungs!
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