Palm whistles by the elephants in the room

Palm whistles by the elephants in the room

Summary: Palm is trying to dance around a bunch of elephants in the room--increased competition, inconsistency and the need to expand--but it's getting difficult. To wit: Palm made a big deal about the sellthrough of 617,000 for its smartphones on its fiscal second quarter earnings conference call.

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TOPICS: Mobility
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Palm is trying to dance around a bunch of elephants in the room--increased competition, inconsistency and the need to expand--but it's getting difficult.

To wit: Palm made a big deal about the sellthrough of 617,000 for its smartphones on its fiscal second quarter earnings conference call. Arguably it had no choice since its third quarter outlook was weaker than expected. What else can you do when the financials aren't pretty?

Palm's fiscal second quarter GAAP earnings of 12 cents a share on sales of $392.9 million were in line with its profit warning a few weeks ago, but its third quarter outlook calling for GAAP earnings of 8 to 10 cents a share disappointed. The big question: Where does Palm go from here?

Merrill Lynch analyst Vivek Arya summed Palm's prospects up nicely in a research note:

"Palm standalone does not have the scale to be successful when rivals RIM, Samsung, Motorola and HTC are launching attractive products at lower price points."

Palm's mission to thwart its rivals: Sell you on the benefits of the Treo so maybe you'll pay a little more to maintain its profit margins. To that end Palm is launching a $25 million marketing campaign to pitch the Treo, said CEO Edward Colligan on Palm's conference call.

"We have done an excellent job of tapping into the mobile professional market, a group of people that truly values information on the go. As we broaden our target demographic, we believe there is an opportunity to reach a whole new set of users who may not be as driven by e-mail on the go, but more interested in getting information access, getting access to the core information they care about, much of which resides on the Internet. We believe Treo provides the best Internet access of any device on the market and we intend to make that better known."

Umm ok. One catch: Some folks (including me) just use their smartphone as a modem to get connectivity to their laptops. I don't care what the Treo does it's not going to beat a full laptop screen experience.

Nevertheless, Palm will offer some handholding to get you to keep the Treo. Colligan argued that handholding matters.   


"Since the new customers we attract may be less technical, we will help them feel comfortable trying a Treo through a unique program we call Butler, an effort to handhold our customers through the setup process."

All that effort is nice and maybe Treo evangelists drive sales, but there are a few elephants in the room that Palm has to address.

Elephant 1: Palm results are inconsistent and cutting the next quarter's outlook isn't going to help matters. Palm can blame carriers for Treo delays, but ultimately it looks like an excuse. And excuses are tools of incompetence.

Colligan:

"The first and foremost objective is our commitment to profitable growth. We need to deliver more predictable financial results to our investors and we are driving toward that goal. We are making excellent progress, increasing the number of world-class carrier partners, so that issues that come up with any particular product or particular carrier have less impact on our quarters."

Elephant 2: International expansion. Palm needs to become global and the company is making progress. About 35 percent of Palm's sales come from abroad. What it really needs is to generate a hit in Asia with its mobile-happy population. Most of Palm's conference call focused on Europe.


Elephant 3: Palm is tethered to business sales. Colligan said that business users are tracking toward 40 percent of sales. While that's not necessarily a bad thing, these users aren't the ones to buy the latest greatest Treo at the drop of a hat. The Treo is a tool not a fashion statement. As smartphones move downstream, Palm will need to generate some Apple-like love for its products.

Elephant 4: There is a lot more competition for Palm, which used to have the smartphone market largely to itself. That's no longer the case with Samsung's Blackjack, RIM tinkering in the market and the Motorola Q. Sure you can argue that these offerings are deficient--as Colligan did--but everything has a price. Meanwhile, Colligan noted that the recent flurry of smartphones hitting the market isn't likely to last.

In other words, Palm is banking on reduced competition at some point.

Colligan:

"I cannot imagine the competitive number of offerings that has come out in the last quarter is sustainable on a consistent basis."
That statement is a little shocking. Shouldn't Palm assume competition will at least be at current levels going forward and plan accordingly? Palm just doesn't seem battle ready.

Topic: Mobility

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6 comments
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  • They always fall short

    I love the Treo and think is one of the best devices out there but I left them for the PPC6700. The PPC6700 is a rock and I always have to reset it to name a few problems among many. However it has Wifi, slightly larger screen, better keyboard. If Palm came up with a Wifi/Wimax product (Sprint) with a better screen, more memory and a completely compliant browser in a thin package the thing would sell like hotcakes. Palm does the best job integrating phone/internet/PDA but a poor job staying ahead of the curve.
    PenultimateUser
  • It's about the Software, Not the Device

    This isn't about the device, it's about the Palm OS and the choice of software available for the Treo. No other device comes close.

    My Treo 650 is used for everything personal and business. Dataviz software lets me synch everything in Outlook, I added Franklin Planner daily notes which synchs on the PC, added Pennovate Notes which allows me to write on the Treo (not type), a Voice Dialer (from Voice Signal), and free SoundRec (Infinity Ball) to make voice notes, and free Google Maps.

    I haven't thought of anything I need that I couldn't find because of the Palm OS ecosystem. From my perspective, the other devices are all gadgets.
    glenn.rossman@...
  • Palm...elephant...room

    Palm is rediculous to think that they are going to always own the market...IBM thought they would own the market too, then this college drop out named Bill came a long and BOOM...AS/400 is relegated to a small contingent of specialized users...nothing compared to the degree of MS...
    Kimska
  • PALM WHO??

    I have owned every smartfone + couple dumbones & every PDA except a Treo! The best was an Imate XDA slider, pity about MSW5 [immobile] crashes 24/7. The worst POS was an HP 6365, which is still in the shop, never worked properly & HP were too yellow to replace it. It is just simply junk. 3rd screen. The best fone I ever owned was a SE K70i, reflashed to 800 specs. Small, tite, quick, excellent. New toy is a SE P990i, UIQ3 platform, 3GIG RAM!! Stunning!! Dont waste yr time, get the 990i. The TouchScreen alone is worth the price of admission. Did a reflash after a week, now kicks-butt. The Clie, if you can find one, probably best PDA around. Especially the flip-types. Elephants? Who cares. Class rules. BR>Jack
    jack-daniels@...
  • Palm Quality Drops - love factor gone

    Purchased my 6th Palm only to find that bugs have crept into the basic functionality and Palm doesn't have the willpower to fix. Sounds like they can't afford the resources to advance their product correctly. Creating disloyality among previous Palm users is sure to create a barrier to market growth. Another has-been company, just like the Osborne portable computer of years ago.
    only.me@...
  • Palm Destop on PC is clunky but better than Outlook, etc.

    I started with the Handspring Visor, upgraded to Handspring Edge, and than Keysera 7135 from Verizon, then to Treo 650 as even exchange from Verizon, and in August, I upgraded to 700p.
    That said, I continue to hope for more functions for the Desktop that are like the ones on the Treo 700p; they should be much more similiar in their features and operations.
    I checked out the 650W and then the 700w but they have only one feature that I want: the ability to switch between running applications, i.e., Dir. Assistant (a GREAT FREE add-on) and Blazer web browser. I continue to learn from all that I meet with Treo in the Airports that I travel through. Caphear@myway.com
    caphear