Palm may run out of cash, warns analyst

 

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By Reuters

Posted on 6 Nov 2008 at 12:04

Shares in Palm have tumbled after an analyst downgraded the stock and questioned whether the smartphone maker will need to raise additional capital to pull off its turnaround plan.

The shares fell by 21% at $3.16 in Wednesday afternoon trade on Nasdaq.

Morgan Keegan analyst Tavis McCourt says he expects Palm's cash balance to fall to $75 million next year as it launches its new platform. Its cash balance was $248 million at the end of August.

"We are increasingly concerned that Palm has little room for additional missteps prior to its new platform launch next year without needing to raise additional capital," McCourt claims, noting that Palm filed a shelf registration on Monday that would allow it to issue debt, stock or other securities to raise funds.

"Although needing additional capital (if it comes to that) is not the end of the world for Palm, given its deep-pocketed backers at Elevation Partners, it is impossible to determine ultimately how dilutive such a capital infusion may be to common shareholders," McCourt says.

Private equity firm Elevation Partners bought a 25% stake in Palm last autumn for $325 million.

McCourt claims Palm, maker of the Centro and Treo smartphones, is on track to release its new hardware and operating system in mid-2009. He expects the launch to ultimately return the company to profitability.

Shares of Palm are down roughly 50% this year.