Palm's Last Quarter Was a ''Difficult Period''

[Ed Hardy]

Palm warned earlier this month that its revenue for last quarter was well below expectations, and yesterday it announced its quarterly results.

The company's total revenue was $192 million, down from $350 million in the same quarter a year ago. The company's revenue from smartphones -- it's bread-and-butter   -- was $171.0 million, down 39% from the year-ago period.

"We're working through an undeniably difficult period," said Ed Colligan, Palm president and CEO, "but near-term challenges shouldn't overshadow the fact that we are on track to deliver a breakthrough new platform and products that will bring a truly differentiated smartphone experience to our customers and reestablish Palm as a leading innovator in the mobile industry."

Colligan is referring to Palm's next operating system -- code-named Nova -- and the first smartphones running it, which are expected to be unveiled at the Consumer Electronics Show early next month. This is expected to combine new and old, with new product designs running an updated operating system, but including backward compatibility with the current library of Palm OS software.

Palm executives predict that their company will return to profitability at some point in 2010, based on the strength of this new platform.

Smartphones and Handhelds

During the Sept.-to-Nov. quarter, Palm sold 599,000 smartphones, down 13 percent year over year. This lead to the 39% in smartphone revenue mentioned earlier.

It sold 158,000 traditional handhelds during this period, and took in $21 million in revenue. This was a 5% decline from the previous quarter, but a 51% year-over-year drop-off.

In the conference call after these results were announced, Colligan commented on both the short-term and long-term prospects for his company's handhelds: "In the handheld business, it continues to sell, it's selling this holiday season. We will push those out into the marketplace as long as there is sufficient demand. One of the things that’s kind of a self-fulfilling prophecy is we're not developing new ones and so there's an inevitable end."

 

[r0k]

With 600k smartphones sold and only 158k handhelds, I can understand why Palm continues to ignore calls to produce a handheld, especially in light of the fact that the 158k handhelds represents a 51% decline in handheld sales. I wouldn't divert a penny from smartphone development to handheld development unless it was the only way to get Nova in end users' hands without bothering with the cell carriers. In fact, an unlocked Nova phone would probably be picked up a lot quicker than the unlocked Treo Pro is being picked up by Att.

Apple has the "luxury" of raking in huge profits while continuing to ignore CDMA. I wish Palm had this luxury but I expect them to continue to develop both CDMA and GSM. I'm thinking the product announcement in January will be an unlocked GSM Nova phone but I'm sure a CDMA Nova phone will follow soon thereafter.

I hope excitement about Nova doesn't dry up already struggling Centro and Treo Pro sales which are needed to keep the lights on while Nova production ramps up. I would hate to see Palm go the way of Osborne.

[Ed Hardy]

Naturally, analysts and investors asked about Nova in the conference call, but Colligan was relentlessly vague. so I didn't include very much about it in the news article. Here's a typical exchange:

Charles John - Piper Jaffray:
Just a few questions from me -- it sounds like you have made good progress with your next generation OS. Could you give us a sense of how these new operating systems, these products are going to be differentiated from the ones we currently have in the market? Is it going to be more about the graphical interface or are you looking more for specific form factors like touch screens or full QWERTY keyboards?

Ed Colligan:
Charles, I’m not going to get into details about the products. Suffice it to say, we consider all of those different elements in trying to look at what our customers would want, what we think would be really important breakthroughs in the market, analyzing the competitive environment and understanding what things have been successful there, taking the combination of those things and putting out what we think will be the most compelling product and platform on the market. That’s what we are doing and I am very excited about how the development is coming along and I think we will achieve our goals.

Thanks to Seeking Alpha for the transcript.

[Hook]

With 600k smartphones sold and only 158k handhelds, I can understand why Palm continues to ignore calls to produce a handheld, especially in light of the fact that the 158k handhelds represents a 51% decline in handheld sales.

On the other hand, selling 158K of a product line that a) hasn't been refreshed in 3 years and b) has virtually $0 advertising investment is actually pretty impressive. If it involved little more R&D than pulling the phone radio out (and leaving the wifi), what have you got to lose?

[RickAgresta]

I agree; full-fledged smartphone, and full-fledged phoneless PDA.

[r0k]

On the other hand, selling 158K of a product line that a) hasn't been refreshed in 3 years and b) has virtually $0 advertising investment is actually pretty impressive. If it involved little more R&D than pulling the phone radio out (and leaving the wifi), what have you got to lose?

Opportunity cost. Every minute you spend developing product B is a minute you didn't spend developing product A. To put Nova on a TX would require work, while continuing to sell a TX running garnet requires no work. If I was the engineering manager and somebody walked up to me with a proposal for a Nova pda, the first question I would ask is how will it impact the on time delivery of a Nova smartphone? Palm has had pda revenue all along and if that had been enough, they wouldn't be in so much trouble right now. They've gotta fix what's broken: Their smartphone revenue stream. PDA's can wait.

[berylrb]

interesting thing is that the stock jumped both the day before and the day of and it is up today, 25% in less than 3 days, $2.04 to $2.48 currently, ... my point is either the market sees PALM as a bargain, short play, or they believe the potential of Nova, we shall see.

[RickAgresta]

Opportunity cost. Every minute you spend developing product B is a minute you didn't spend developing product A. To put Nova on a TX would require work, while continuing to sell a TX running garnet requires no work. If I was the engineering manager and somebody walked up to me with a proposal for a Nova pda, the first question I would ask is how will it impact the on time delivery of a Nova smartphone? Palm has had pda revenue all along and if that had been enough, they wouldn't be in so much trouble right now. They've gotta fix what's broken: Their smartphone revenue stream. PDA's can wait.

and that is fine&dandy, A-OK with me. just, at some point in the 2nd decade of the 21st century, DO IT!

[NamelessPlayer]

On the other hand, selling 158K of a product line that a) hasn't been refreshed in 3 years and b) has virtually $0 advertising investment is actually pretty impressive.

My thoughts exactly. Maybe they'd see more PDA sales if they just had something to offer that isn't ridiculously dated.

Then again, Nova presents a great upgrade opportunity for the pocket computer segment, at least after they start selling smartphones like hotcakes (if they can manage to pull that off in the face of the iPhone and G1/HTC Dream). Tungsten C2 with a backlit thumbboard, WVGA screen, NVIDIA APX 2500/Tegra or TI OMAP3430, video-out (composite, S-Video, component, VGA, maybe even HDMI?), Bluetooth 2.1, 802.11g (maybe n), WPA2-PSK AES, 3.5mm headphone jack that doesn't have background hiss, and all those other nice things, perhaps? (It's probably not likely since device manufacturers tend to save the thumbboards for the phones, but maybe someone will get it.)

[Ed Hardy]

and that is fine&dandy, A-OK with me. just, at some point in the 2nd decade of the 21st century, DO IT!

Let me quote Ed Colligan comments on handhelds again: "we're not developing new ones and so there's an inevitable end."

I'm not saying its impossible that Palm will release another traditional handheld, but something really significant would have to change. As it looks now, it's not going to happen. I understand that many of you disagree with this decision, but it's the one Palm has made. Please don't hold on just because you think a Nova-based handheld is coming at some point. It's not.
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