Earnings
Palm’s Struggles Will Handicap Its Ability To Ward Off Upcoming Competition
Palm’s poor performance was no surprise today since it sent out a warning last month that sales were falling way short of expectations.
But it’s not the company’s weak performance in Q3 that people should worry about. Cash-strapped Palm (NSDQ: PALM) will be busy conducting a turnaround over the next few months as its competitors rush into the market with guns blazing. Already, Palm’s launch on Verizon Wireless took a back-seat to the Motorola (NYSE: MOT) Droid as Verizon’s big device launch of the year. Closer to the end of the year, Palm will have to contend with Microsoft (NSDQ: MSFT) as it prepares to launch its flashy new operating system.
The problem:
As the company warned last month, sales of the Palm Pre Plus and Palm Pixi Plus at Verizon Wireless did not meet expectations. The company blamed most of the problems on not sufficiently training Verizon Wireless retail employees on the product, so that they could recommend it to customers visiting the store. In the past, Verizon has focused strongly on pushing BlackBerry devices and then became occupied for the Motorola Droid launch. But Palm’s CEO Jon Rubinstein said with the help of Verizon, their employees are currently going from store-to-store to get employees up to date, and that there’s anecdotal evidence that it is working. Palm won’t launch with AT&T (NYSE: T) until later this year.
Unsold inventory:
The big concern in the short-term is the company’s mounds of unsold phones. The company said it shipped 960,000 smartphone during the quarter, which was above analyst’s expectations, however, the company’s sell-through for the quarter remained a dismal 408,000 units, falling 29 percent compared the the previous quarter. With unsold inventory being a problem, the company will have to wait until carriers order more phones. In Q4, revenues could be as low as $150 million, more than less than what it made in Q3. Falling sales in Q4 will mean the company will burn cash, something it doesn’t have a lot of—especially when compared to Microsoft or Google’s handset partners, like Motorola, Samsung or HTC.
Cash Reserves:
The company would not estimate how much cash it will burn in the upcoming quarter, but during the company’s conference call today, an analyst guessed out loud that it could be as much as $200 million. The company said at the end of Q3 it had $592 million in cash and equivalents. Palm said it doesn’t not have any plans to raise additional money because it has enough until the business breaks even.
Lowering spending:
In response to the outlook, Palm said it is revising spending and plans to focus on sales and marketing and field training efforts and that Q4 operating expenses will be lower than Q3. One of the areas is advertising, where it will launch a new 30-second TV campaign during the first two weeks of March Madness, but after that, Rubinstein said they’ll shift to cheaper online advertising in social networks. Cutting expenses is likely the most important thing Palm can do at this time, but with deep-pocket competitors like Apple (NSDQ: AAPL), Google (NSDQ: GOOG) and Microsoft, in the market it will be hard to remain top of mind for consumers.
Q3 Results:
In the third quarter, Palm reported a net loss of $18.5 million, or 13 cents a share, on revenue of $349.9 million—exceeding its own revised forecasts. Last month, it warned that revenues could be as low as $285 to $310 million. However, that’s below analysts’ expectations of $424.7 million (before the warning was issued).
Posted In: Mobile, Money, Earnings, Companies, Palm, Verizon
Newsletter
