Palm CEO: It's not too late for us; Is it a dead company walking?
Is Palm a dead company walking or just one in a rough transition to a set of next generation products that will return the company to past glory?Palm CEO Ed Colligan clearly believes Palm is that latter.
Is Palm a dead company walking or just one in a rough transition to a set of next generation products that will return the company to past glory?
Palm CEO Ed Colligan clearly believes Palm is that latter. He argues Palm's next generation devices, which won't really get rolling to 2010, and a new operating system dubbed Nova will return the company to prominence.
What if those next generation products and this OS don't produce? Palm could be toast. And Palm's second quarter results, third quarter outlook and an "undeniably difficult period" aren't exactly soothing.
Paul Coster, an analyst at J.P. Morgan, asked Colligan how he responds to the argument that it's too late for Palm's new OS and products. Colligan said on a conference call:
I think it’s ridiculous. I mean, it’s early in the space. There’s an enormous amount of opportunity left. If you look at just the replacement market in this business, every year there’s phenomenal numbers of even just replacement devices, so the chance that there’s not another opportunity ahead or we can’t build a platform position here I think is not real. So it’s incumbent upon us to create really compelling products and a differentiated enough platform that people will recognize that and come to Palm. We have millions of users that recognize our brand of delivering them fantastic solutions over the years. We expect they will look to us again and we hope as feature phone users migrate to smartphones that we will get more and more of them as well.
The problem is this: Palm needs a home run. It faces RIM, Apple, Samsung and others cooking up a never-ending stream of great devices. Meanwhile, Palm is burning through cash as it waits for its cavalry.
As preannounced, Palm reported a second quarter net loss of $80.2 million, or 73 cents a share, excluding charges. Net loss was $508.6 million, or $4.64 a share, due to a non-cash charge. Revenue cratered. Palm had second quarter revenue of $191.6 million, down from $349.6 million a year ago.
Palm has a war chest of $223 million in cash and short-term investments as a cushion, but analysts were asking about cash burn--never a good sign.
Meanwhile, Palm CFO Andrew Brown is leaving the company to be replaced by former eBay chief accounting officer Douglas Jeffries. Shuffling executives during this critical period for Palm is also worrisome. Palm is facing a maturing product cycle for its $99 Centro and its Treo Pro is just hitting carriers. Toss in a shaky economy and Palm is facing the perfect storm.
Palm talks about how it can integrate hardware and software seamlessly, but folks need to see the results already.
Clearly we are operating in an extremely tough climate and we expect to face continued challenges in the coming months. We are managing through a number of issues at once -- a Palm OS architecture and product line that is maturing, consumer spending that is down, and the expenses associated with new products that are still in development but have yet to impact our revenues.
We understand that a pipeline of new products is necessary to maintain momentum and we’ll soon be replacing our aging product line with our next generation products. Until then, we’ll have a few rough months ahead but we are optimistic that as we enter fiscal 2010, we’ll see the success of our new products positively impact our income statement.