Add to del.icio.us     Digg this

Mar. 22, 2010

Late Friday, Palm announced an increased number of handset shipments to wireless carriers during its third fiscal quarter ended Feb. 26, but nevertheless, sales to consumers still dropped by a staggering 29 percent.

Now some wireless industry analysts are worried that Palm now has to finance excess inventories and that this will continue to negatively impact future earnings for 2010.

Overall, the handset maker said it shipped about 961,200 devices during its last fiscal quarter, which was a 23.2 percent increase compared with its previous quarter. However, sales to consumers dropped by 29 percent sequentially to just 408,000 units.

Palm also noted that average selling prices also dropped slightly from $375 during its second fiscal quarter to $367 in the third quarter, which the company attributed to increased sales of its entry-level Pixi model.

Palm's vice president and CFO Doug Jeffries noted that its WebOS-based devices, which include the Pre and Pixi, made up most of the sales during the recent quarter and that the sale drop was due mostly to lower sales of its legacy devices.

Palm's bleak sales results further cloud the smartphone manufacturer’s future that many expect could include an acquisition, going private or simply put, a bankruptcy filing sometime down the road.

Palm’s fourth fiscal quarter guidance indicates it doesn't expect any improvement in sales as its forecast for $150 million in revenues was around half of what was expected. This is especially disappointing as Palm is expected to increase its distribution to AT&T Mobility during the quarter and is set to dive into the European market with Vodafone Group.

Overall, Palm posted a net loss of $22.1 million during the quarter, which without certain items related to its falling stock prices would have been a lot worse at around $102 million.

In light of Palm's current problems and weak sales, one analyst firm seems to have made up its mind. Canaccord Adams dropped its target price for Palm’s stock from $4 all the way down to $0 and reiterated its “sell” rating on the stock.

A number of other Wall Street brokerages had already reduced their ratings on Palm’s stock following a pre-announcement briefing the company held Feb. 25.

On average, the company’s operating system and handsets have in general received some fairly decent reviews, but many analysts have pointed out that Palm’s inability to gain traction in an increasingly competitive smartphone landscape has seriously doomed its potential.

Now there are many that question its decision last year to launch exclusively with beleaguered operator Sprint Nextel and that its expansion to another domestic carrier, Verizon Wireless, was put off until January 2010.

In that same time frame, Apple's iPhone has continued to draw substantial numbers through its exclusive domestic relationship with AT&T, while Verizon Wireless has thrown considerable marketing efforts behind the Motorola Droid that runs Google’s Android operating system.

Further clouding Palm’s future are worrisome reports that it has less than ten or eleven months worth of cash on hand and at its current "burn rate" it could be hitting the bottom of the stack even before 2010 is over, some analysts fear.

Palm’s shares this morning were trading at about $4.10 which are about where they were at last year just prior to unveiling its WebOS and Pre plans at the 2009 Consumer Electronics Show.

The company’s stock consistently rose to more than $18 per share in September of 2009 following release of encouraging first fiscal quarter results.

Add to del.icio.us     Digg this

Source: Palm Inc.