Palm Takes It on the Chin, Still Fighting

Saturday Jun 27th 2009 by Michelle Megna
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Forget the non-impressive current results, the company might benefit from some good developments, like an app store strategy, favorable Pre demographics and the webOS ecosystem.

Palm continues to placate Wall Street with promises of future growth, as shares jumped in after-hours trading even as the smartphone maker reported a loss totaling $105 million for its fiscal fourth quarter.

While the loss didn't surprise industry watchers -- it actually topped analyst estimates -- the company's executives did touch on Palm's direction during its critical transformation.

During the company's earnings call, newly appointed Palm CEO Jon Rubenstein ran down a list of Palm's strengths, including interest from the enterprise for the company's new flagship product, the Palm Pre, and expressed confidence in his belief that company's new mobile platform webOS will take off with developers, despite a slow roll-out.

For the quarter ending May 29, Palm's (NASDAQ: PALM) net loss of $105 million is more than double the loss of $43.4 million in the same quarter last year.

Palm lost $0.40 per share in the latest quarter, compared with a loss of $0.22 per share a year earlier. Revenue dipped from the past year by 71 percent, to $86.8 million from $296.2 million. Analysts polled by Thomson Reuters were looking for Palm to post a loss of $0.62 per share on sales of $80.6 million.

Palm also shipped 351,000 smartphones during the quarter, down 62 percent from a year earlier.

For the entire fiscal year, Palm realized a loss of $753 million, or $6.51 a share, compared with a loss of $110.9 million, or $1.05 a share, a year earlier. Revenue fell 44 percent to $735.9 million from $1.32 billion.

Still, Palm share price rose $1.68 to $15.70 in trading before exchanges opened, and shares have more than quadrupled this year in large part on speculation that the Palm Pre will fuel a comeback at the company.

Also, the fourth-quarter and full-year results don't account for the success the Palm Pre has seen since it went on sale June 6 -- and Jon Rubenstein made sure investors and analysts looked to the company's future.

"The launch of Palm webOS and Palm Pre was a major milestone in Palm's transformation," Rubenstein said in a statement. "We have now officially re-entered the race. We have more to accomplish, but the groundwork is laid for a very promising future here at Palm."

The Pre, the first smartphone operating on the company's new webOS mobile operating system, hit store shelves three weeks ago. It faces tough competition from Apple's (NASDAQ: AAPL) new iPhone 3G S, as well as other models expected from Research In Motion (NASDAQ: RIMM) and those running on Android from HTC, Samsung and Motorola.

Still, Rubenstein said the lucrative smartphone market is healthy enough to sustain more than one top dog.

"Only a handful of companies have the software and product design capabilities," he said during the earnings call. "There's room for three to five players in this space. We don't have to beat each other to prosper."

Among the competition, the RIM BlackBerry dominates in the enterprise but its maker is trying to push into the consumer market, where Apple reigns supreme. But Palm's chief said there's initial interest in the Pre from the enterprise, as well.

"One thing we're seeing is a lot of interest out of the enterprise, and we don't have a lot of data yet, but the general feel is there is a lot of enterprise interest out there," he said.

Next page: Pre success, webOS hopes

Pre success, webOS hopes

Rubenstein, a veteran of Apple where he helped create the ubiquitous iPod, would not confirm analysts estimates that 150,000 Pres have sold since launch, or that a "Pre Lite" model would be released by the end of the year to compete with the iPhone 3G, which now retails for $99.

He did, however, confirm that confirm that Palm Pre owners have downloaded 1 million apps for the new smartphone and hinted at future devices coming in the webOS family.

"We do have a great product pipeline, which I'm not going to tell you about it right now -- sorry," he said.

On the developer front, analysts have cited the slow release of the webOS SDK, due out at the end of the summer, and limited number of apps at launch, around 30, as possible deterrents to the success of the Pre.

Rubenstein responded by saying the company's "methodical approach" will pay off, and that he wanted to get developer feedback before releasing it, which could be interpreted at a veiled jab at Google's Android OS, which has been criticized for being unleashed before it was ready.

He also said the company will take some sort of social media approach to the app store.

"One of our views is as you get large numbers of apps, discovery, finding ones interesting to you becomes more and more difficult. So we hope to use a more community approach to that, I'm not getting into specifics, but you'll have to stay tuned for some exciting [news] in that area," Rubenstein said.

Developers with experience creating Pre apps predict that the community will rally around webOS as it uses building blocks most programmers are already familiar with.

Rubenstein agreed. "We've had tremendous interest in this area, we're approaching it methodically, we had 30 developers in the beginning, with their feedback we evolved the SDK, the we let hundreds in, and we're feeling good about it, and we're about to open it up to thousands, there's a lot of developers in the queue, so I don't there's an issue with a lack of interest out there," he said.

He also declined to comment on any when the webOS family of products would be released on other carriers. Sprint now has an exclusive deal to sell the Palm Pre.

Rubenstein called Sprint a "great partner," saying the carrier is doing a "phenomenal job," based on personal visits he made to stores at launch, and added that its data plans are generally cheaper than that of competitors. However, he declined to go into further detail on Palm's relationships with Sprint or other carriers.

"It's not something we talk about," he said.

Despite the positive take on the company's next steps outlined during the earnings call, at least one analyst is wary of how the bottom line will be impacted moving forward.

"While Palm delivered a good quarter on very low expectations, we remain cautious on the stock due to the lack of visibility heading into F2010," Peter Misek, an analyst with Canaccord Adams, wrote in a report issued today.

"The company offered no financial guidance and would not disclose Pre volumes in the quarter. Management would also offer no updates on other carrier discussions or new product launch plans. In addition, we believe that Pre sales are below our projections at roughly 150,000 sold to date according to our channel checks."

Article courtesy of InternetNews.com.

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