Palm: Demand tanks ahead of Pre launch; Pre needs to save the day

Palm: Demand tanks ahead of Pre launch; Pre needs to save the day

Summary: Palm said Tuesday that its third quarter sales will be well below expectations as customers wait for the Pre to launch. Delays in Treo Pro shipments didn't help matters either.

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Palm said Tuesday that its third quarter sales will be well below expectations as customers wait for the Pre to launch. Delays in Treo Pro shipments didn't help matters either. 

The result: Palm said its fiscal third quarter sales will be between $85 million and $90 million. Wall Street was expecting sales of $155 million. While a revenue drop-off was expected when Palm introduced the Pre the rate of decline is a bit stunning. When it comes to Palm's turnaround it's clearly going to be worse before the Pre allegedly saves the day. Palm didn't give an outlook for its third quarter loss, but it's likely to also be much worse than Wall Street estimates calling for a loss of 46 cents a share.

In a statement, Palm said:

The revenue declines vs. the company’s second quarter of fiscal year 2009 and third quarter of fiscal year 2008 are the result of reduced demand for Palm’s maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo Pro in the United States. The company expects declining revenues and continued margin pressure from its legacy product lines in the fiscal fourth quarter.

The bright side: Palm's launch of the Pre "remains on track for the first half of 2009," said Palm CEO Ed Colligan, who also said that the company has a "difficult transition period to work through."

The Pre can't come soon enough. Palm said it burned through $95 million and $100 million in the quarter--essentially all the money it recently raised. Palm said it will have cash and equivalents of $215 million to $220 million at the end of its third quarter. 

Image Gallery: Palm Pre revealed in all its beautiful glory

Simply put, Palm is in a race between the Pre launch, a shrinking business and its cash position. The company added:

Although Palm believes it has sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan, the company intends to strengthen its working capital position given the challenging economic environment and the opportunity to drive both the launch of the Palm Pre and future product-development efforts. The company is currently evaluating options in this regard, including the exercise of its right to direct the remarketing of a portion of the common shares underlying the Series C preferred stock and warrant units owned by Elevation Partners. Palm is entitled to retain any net profits realized from such remarketing.

The company is also tweaking the way it recognizes expenses associated with the WebOS. 

Add it up and it appears the Pre is an all-or-nothing proposition for Palm.

Also see: Palm Pre: Can it trump the iPhone? Will it matter?

Topics: Hardware, Banking, Enterprise Software, Mobility, Smartphones

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6 comments
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  • I would wait on Pre

    Palm is so thin on support depth right now, and the Pre smells strongly of a product being rushed to market even for a late June launch. Looks like Sprint is worried about the rush too.

    I have some good experiences and bad experiences with Palm, but rarely a good exprience with one of their products when it is new to market.

    The new OS looks like it can hold up to iPhone but I would not risk my business lines on it until the dust has settled perhaps in early 2010. By then and sooner several new iphones and other highly develped will be out by the competition.

    There were huge quality conrol issues. With the GSM Pro, with cases cracking on many users and which carriers refused to pick up due to their unwillinglness to take returns on that; a recall on the CDMA Pro for Sprint due to what rhe expert boards say was failure to recognize substandard memory; and a false advertsing claim on the GPS on the 800w due apparently to a missing driver that they never paid Qualcomm for. Those are the last three Palm launches -- all botches.
    JJ566
  • Palm can't afford another "me too" product

    How do they differentiate this from the rest of the competition?
    What's the "order winner"?

    Important questions, and the answers are unclear. In the meantime, evidently they have a redundant product that won't bring them any revenue stream to stay afloat while their new product hopefully gains market share.
    pikeman666
  • RE: Palm: Demand tanks ahead of Pre launch; Pre needs to save the day

    I love the Pre. But, I need Direct Connect.

    Therefore, I'm waiting for the Pre PTT.

    Come on Palm, you can do it!
    Hameiri
  • Anyone not see this coming?

    Honestly. This thing has ZERO buzz in the general population. Visit any mall... It's iPhones, Storms, or something by Nokia.

    I don't see how this can become a "must-have". And in a poor economy it's either "must-have", or "not good enough I'll hang on to what I already own".
    croberts
  • RE: Palm: Demand tanks ahead of Pre launch; Pre needs to save the day

    Palm may have missed the boat on this one and has seemingly taken sprint along with them. Historically, Palm has always had glitches with their product launches. Life drives, Treos, both were only consistent with their ability to crash; And Sprint/Nextel has always played the waiting game with product launches, which clearly continues to affect their market share. Why should we expect anything else from the Pre launch?

    Meanwhile, Palm and Sprint are hemorrhaging massive losses each quarter while placing all their faith for redemption in an untested and unproven product in the market place? What kind of support can be expected from either company as they continue to implode? The result, a decreasing incentive for recruitment or retention of customers.

    Palm should use the hype generated at CES to get the Pre to market sooner than later where we all know, no one will likes to buy ?day old? bread (i.e. newer competing products stealing Pre?s thunder). The sooner it gets to market the sooner they can address potential user issues/product improvement and focus on recapturing and maybe even increasing market share. My 2 cents.
    jnotice
  • RE: Palm: Demand tanks ahead of Pre launch; Pre needs to save the day

    Just saw the HTC Touch Pro 2. Palm better strike while the iron is hot. If this HTC phone were available now I wouldn't wait on the Pre
    gjhdvm