Palm Inc. pulled off a high-wire act this afternoon, publicly resurrecting the company’s fortunes in front of a live audience at the Consumer Electronics Show in Las Vegas.
Proof?
A packed ballroom at the Venetian Las Vegas Hotel ooh’d and aah’d at a flawless presentation and Palm’s stock shot skyward.
Palm stock gained more than 35% in the hour following the presentation of its new “Pre” device powered by its possibly life-saving Palm WebOS, which will launch at Sprint Nextel Corp. sometime in the first half of this year. The euphoria continued on Friday as the stock gained 40% on its opening price before leveling off at about $6 in midday trading.
Palm did not provide the always-critical pricing for the Pre, but it is generally accepted that the device must sell for $200 or less, with a service contract. That may require a substantial subsidy by Sprint Nextel, according to one analyst.
Still, the context for the skyward stock price – it rose from $3.36 when it opened today to $4.45 just after Palm’s CES presentation, about half its 52-week high – underscored that Palm has only addressed the first of two major hurdles. With OS and device in hand, it must execute on its promises and shepherd its savior through a crowded field of fierce competitors to return to profitability and reclaim its dwindling market share.
Palm has seen declining sales of its aging Treo line and, despite a brief hit with its $100 Centro device, the latter brought unit volumes with the slimmest of profits. The company’s future has been widely seen as dependent on bringing a radically new platform to market before a window of opportunity closed forever.
But initial reactions among those who attended today’s event were positive.
“Palm is back,” declared analyst Avi Greengart at Current Analysis. “The bar was set fairly high and they cleared that bar. They did a leapfrog – other companies do bits and pieces of what they’ve done with the new OS. The device feels wonderful in your hand.”
(Greengart, unlike the minions attending Palm’s public event, had an hour of hands-on experience with the device.)
Sprint Nextel’s Dan Hesse discusses the Pre during Palm’s presentation in Las Vegas. (Photo credit: Dan Meyer)
“Palm came out with guns blazing,” said financial analyst Matt Thornton of Avian Securities L.L.C. “They met or exceeded expectations. This gives the company a sense of momentum and a return to confidence.”
“Of course,” Thornton added, “the bigger question is how the device is marketed. Will it launch on time? Will AT&T Mobility and Verizon Wireless get on board? Sprint alone isn’t enough to save the day. The profitability impact at this point is unknown.”
Two issues face Palm in launching the Pre, according to analyst Pablo Perez-Fernandez at Global Crown Capital, L.L.C.
The first is price.
“We believe that Palm will have to sell the Pre for $500 to $600 to extract gross margins in the low 30s,” Perez-Fernandez wrote Friday in an investor note.
Should Sprint Nextel decide to subsidize the device down to the $200 level set by the iPhone at competitor AT&T Mobility and it proves popular, that could translate to a huge expense for the carrier. (AT&T had warned that its iPhone subsidies would impact earnings for two years.) But the ailing Sprint Nextel might not have a choice.
Perez-Fernandez also noted, after a hands-on demonstration of the Pre, that work remained to be done.
“Our examination of the Pre suggests that there is still plenty of work left on both the device and the OS,” Perez-Fernandez wrote today.
Still, the analyst’s take was positive.
“Our initial response to the new OS and device was nothing short of wow!” Perez-Fernandez wrote. “We are tempted to say that Palm has done multi-touch better than Apple … (and the device) should appeal to a wide range of buyers.”
Pre, WebOS differentiators
“Palm is differentiating itself by building a product that aggregates disparate information sources from all over the Web,” Greengart said. “It provides a unified calendar, unified contacts and unified instant messaging. It simplifies a Web-based life on a mobile OS.”
“There’s no question that a unified, integrated approach to Web applications is something consumers will want,” Greengart continued. “And that’s something that competitors ought to be doing. With Android, competitors might do this for themselves. But Palm will certainly hit the market first.”
Despite “bits and pieces” of this approach offered by competitors, no one else “combines the integration not just of social networking but Exchange e-mail contacts as well, with a user interface that was clearly designed from the outset for a capacitive-touchscreen device,” Greengart said. “Some gestures enabled by WebOS are unique and some are familiar, such as pinch, zoom and swipe.”
“The hardware is great,” Greengart added. “It feels wonderful in your hand. And when you slide out the QWERTY keyboard, it slides out and tilts up – that’s great, too. The keyboard, however, is not the best QWERTY keyboard I’ve used.”
A Palm executive shows off the Pre’s “Touchstone” battery charger. (Photo credit: Dan Meyer)
The “Touchstone” battery charger, which requires only that the device be placed on top of it, no cables required, is “cool,” the analyst said. “It doesn’t come in the box, but I expect it will be popular.”
Fighting for developers
The Achilles heel of companies introducing new platforms, of course, is the developer ecosystem they can attract.
Most critically for Palm, Apple and other competitors already have a large ecosystem of applications and accessories, Greengart pointed out.
“This is where the new Palm device is most challenged out of the gate, because when it launches it will only have a selective set of applications, not the 10,000 Apple has or, potentially, that Android will have,” Greengart added. “It’s a new platform.”
The fat middle
And how is Palm positioning the new device?
Palm executives recently told BusinessWeek that the new platform and hardware would be aimed at the “fat middle” of the market, where Apple has begun its mobile-device pursuits on the consumer side and made moves for the enterprise, while Research In Motion Ltd., began in enterprise and has had great success by attracting consumers.
Palm sold nearly 600,000 smartphones in its recent quarter, while RIM shipped 6.7 million BlackBerrys and Apple sold 6.9 million iPhones.
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Article updated Jan. 9 to include additional analyst comments.
