Palm is experiencing a bit of a financial hangover today. Following yesterday's second quarter financial results update, which was mostly a disappointment, analysts this morning released notes that were brutally honest about Palm's outlook. In turn, investors unleashed a bit of a whipping on Palm on Friday: shares declined sharply on Friday, closing down more than 13 percent at $10.17.The company said yesterday that it was maintaining its fiscal year 2010 revenue targets and that seems to have some investors worried. The demand for the Pre and Pixi devices through Sprint have not been strong and, despite investments in marketing and advertising, as well as R&D, investors seem concerned about Palm's ability to meet ambitious targets.
It's important to note that, a year ago, Palm had not yet announced its new OS, called WebOS, for mobile devices and had not introduced the Pre or the Pixi. That didn't happen until the Consumer Electronics Show in January - and when it did, there was praise all around. Palm, in keeping with the CEO's "we're still in the early stages of a long race" message, is planning making news at CES again next month. But, so far, that hasn't created a repeat of the excitement that was around last year. In a note to investors, Barclays Capital analysts wrote:
All eyes are likely to now shift to CES, where Palm is once again scheduled to host an event along with its first WebOS developer conference. Last year’s CES was particularly noteworthy as the company used the trade show as a platform to launch the Palm Pre. We do not expect the event to be of similar magnitude this year – i.e. a new product launch – but rather believe that Palm will utilize the event to showcase its developer strategy as well as potentially announce additional carrier(s) partnerships, potentially Verizon. With respect to the launch at Verizon, we believe the carrier remains on track for a February launch of a re-fresh of the Pre and potentially an update of the Pixi. We consider our expectations for the Verizon launch fairly modest compared to other competitive launches (e.g. the Droid)...
Ah, yes. The competition. It's very real and the buzz seems to be centered around Apple's iPhone and Google's Android - not Palm's WebOS. Palm's "long race" attitude is a risky one. Like Palm, Google recently launched a new mobile operating system, but seems to be taking the fast track into the mix - rolling out devices with a number of manufacturers and a number of carriers. The app community on Android is growing and pundits say that 2010 could be the year that Android surpasses Apple's iPhone for smartphone market share. No one is saying that about Palm.
In terms of Palm's strategy, it's unclear which direction the company will take - more devices to choose from or the same devices but sold through more carriers. From a Morgan Keegan analysts note:
Per usual, granularity around future carrier release dates and product launches was absent from the call but general commentary did shed some insight into management's strategic vision. In particular, comments that Palm's strategy lies with a focused device portfolio may imply that the company will simply broaden carrier distribution for existing devices (Verizon Wireless and AT&T are both expected) rather than introduce new form factors in the next couple of quarters (although we do expect new devices in the second half of calendar 2011.) We expect the company's presentation at CES on January 7 will provide additional insight on this front and serve as the next catalyst for PALM shares.
Palm's moment in the spotlight at CES will have to be a big one if it wants to restore some faith in its strategy. Investors are already concerned about Palm's ability to keep pace with the changing mobile landscape. The company will need to bring other carriers on board and add value to the Palm experience, notably through a competitive app offering and experience on WebOS devices. There's a bit of a revolt against Apple underway among developers and Google is already trying to capitalize on that by making the experience less painful for Android.
Now that Palm has heard - loud and clear - from Wall Street investors and Wall Street analysts, the only thing left to do is sit back and wait for news out of CES in a few weeks.