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