The comeback story of Palm Inc. PALM-Q will get its first public review on Thursday, when the handset company posts its first full quarterly results since launching its Pre smart phone.
The groundbreaking Pre, with its touch screen controls and sliding keyboard, is nothing short of a bet-the-company product after Palm's near-death experience three years ago, when it found itself without a replacement for its aging flagship product, the Treo.
With shares of the Sunnyvale, Calif., company up 23 per cent since the arrival of the Pre on the Sprint S-N network in the U.S. on June 6, investors are expecting a good dose of show-me from management.
Palm remains a turnaround play with near-term challenges that could result in volatility in financial results and valuation; we expect, however, these to be overcome in time and would accumulate shares on related weakness. — Mike Abramsky, RBC Dominion Securities
Despite some early glitches in getting enough of the nifty handsets to market this summer, Palm appears to have delivered a widely popular device that is winning customers even in the face of stiff competition from the industry's two biggest innovators: Apple Inc. AAPL-Q and Research In Motion Ltd. RIM-T
The Pre has many features similar to the iPhone, such as mobile e-mail, GPS, camera, contacts and calendar. But it also advances smart-phone design with its Qwerty keyboard that tucks into the device.
The Palm Pre has received mostly positive reviews and predictions it will be a tough competitor to Apple Inc's iPhone.
Extensive checks by Avian Securities LLC of Sprint and third-party retailers suggest that U.S. sales began to slow late in the quarter but that Palm's orders to build more devices were stronger than anticipated.
Matthew Thornton, an analyst with the firm, says that means Palm will have ample supply to meet demand going forward and might be seeing good sales from a price cut announced last week and from the August 27 launch with Bell Canada, only the second network to carry the Pre. He also speculates that the increase in manufacturing orders could suggest plans to get the device out to the European market sooner than expected.
But even with sales likely to rise, Mr. Thornton has a “neutral” rating on Palm's stock and a price target of $15.50 (U.S.). He cites increasing competition in the smart phone market, including Google Inc.'s GOOG-Q Android technology, as a major concern.
Motorola Inc's new "Cliq" cellphone is shown in San Francisco, California September 10, 2009. Motorola Inc on Thursday took the wraps off the new cellphone that uses Google's Android software and seeks to tap into the popularity of online social networks like Facebook and Twitter.— ROBERT GALBRAITH/REUTERS
Palm shares traded at $14.81 on the Nasdaq market Thursday, up 1 cent.
Of the 25 analysts following the stock, only five have “buy” ratings on Palm, according to a survey by Bloomberg.
Analysts are expecting Palm to have sold between 500,000 and 550,000 Pre devices in the last quarter. In comparison, Apple sold 3.8 million iPhones in its last quarter, and has sold some 20 million iPhones since launching the product nearly two years ago.
The emerging rivalry between Apple and Palm has a personal element to it. Several years ago, Palm recruited Jon Rubinstein to help turn around the company. He serves as chairman and chief of product development. Previously, Mr. Rubinstein headed hardware engineering at Apple, where he played key roles in rolling out the iPod music player and iMac personal computer.
The Pre has quickly won the hearts of many technology reviewers, some of whom ranked the device above the much-worshipped iPhone.
Apple Inc.'s iPhone.— Reuters
RBC Dominion Securities Inc. released results of a survey of Pre customers last month and said the smart phone is delivering a high level of customer satisfaction and a relatively low level of returns. A lot of the praise for the product goes to the new operating system that Palm has built.
Mike Abramsky, an analyst with the firm, forecasts that Palm will sell 4.4 million devices running on the new software platform in the coming fiscal year, and 7.7 million in fiscal 2011.
Palm has already announced plans to launch a second smart phone model in time for the holidays, called the Pixi. It will be a slimmer, less-expensive device, with a candy bar design, touch screen and Qwerty keyboard that is designed to expand Palm's market reach.
“Consistent with our speculative risk rating, Palm remains a turnaround play with near-term challenges that could result in volatility in financial results and valuation; we expect, however, these to be overcome in time and would accumulate shares on related weakness,” Mr. Abramsky wrote in a report published this week.
He has an “outperform” rating on the stock and a price target of $25.
