Palm posts poor performance: Stock price hammered, future questioned

Palm Inc. shares dove more than 18% early Friday after the company announced an increased number of shipments to carriers during its third fiscal quarter ended Feb. 26, but a drop in sell through of devices to consumers. The results further cloud the smartphone manufacturer’s future that many expect could include an acquisition, going private or a bankruptcy filing.
Palm said it shipped 960,000 devices during its last fiscal quarter, which was a 23% increase compared with its previous quarter. But, sales to consumers dropped by 29% sequentially to 408,000 units. The company also noted that average selling prices dipped 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 SVP 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 dip was due to lower sales of its legacy devices.
The company’s fourth fiscal quarter guidance indicates it does not 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 telecom giant Vodafone Group plc.
The company posted a net loss of $22 million during the quarter, which without certain items related to its falling stock prices would have been around $100 million.
While rumors have swirled of Palm’s future, one analyst firm seems to have made up its mind. Canaccord Adams dropped its target price for Palm’s stock from $4 to $0 and reiterated its “sell” rating on the stock. A number of other firms had already cut their ratings on Palm’s stock following a pre-announcement briefing the company held late last month.
Further clouding Palm’s future are reports that it has only about 12 months worth of cash on hand and at its current burn rate could be hitting the bottom of the barrel within the year.
Palm’s stock price was hovering around $4.62 per share this morning, which was about where it was 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 last year following release of encouraging first fiscal quarter results, before beginning its dramatic slide.
The company’s operating system and devices have in general received rave reviews, but analysts have pointed out that Palm’s inability to gain traction in an increasingly competitive smartphone landscape has doomed its potential. Many questioned its decision to launch exclusively with beleaguered operator Sprint Nextel Corp. last year and that its expansion to another domestic carrier, Verizon Wireless, was put off until earlier this year. In that time Apple Inc.’s iPhone has continued to draw substantial numbers through its exclusive domestic relationship with AT&T Mobility, while Verizon Wireless has thrown considerable marketing efforts behind the Motorola Inc. Droid that runs Google Inc.’s Android OS.