Can Palm stay alive?

 

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By Reuters

Posted on 19 Mar 2010 at 17:06

Shares in smartphone maker Palm have tumbled, raising further doubts over the long-term future of the company.

Its shares fell 19% in early Nasdaq trading to their lowest level in more than a year after Palm warned that revenue for the current quarter would be far below Wall Street's expectations, amid tepid demand for its smartphones.

In the third quarter, the maker of the Pre and Pixi shipped 960,000 units to carriers, but shoppers only purchased 408,000. It sees fourth-quarter revenue of less than $150 million, one-half of the $306 million expected by analysts.

While we believe Palm has some value with its webOS... we are unsure of the company's prospects as an ongoing concern

As a result, several analysts cut their price targets for Palm shares, and Kaufman Bros analyst Shaw Wu cut his rating on the shares to "sell" from "hold".

"While we believe Palm has some value with its webOS... we are unsure of the company's prospects as an ongoing concern," he said in a client note.

Four analysts now rank the stock at "sell" or "underperform", and nine others rate the stock at "hold."

Canaccord Adams analyst Peter Misek, who has a "sell" rating, said Palm's troubles will likely accelerate as its partners question the company's solvency and withdraw their support.

"With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity, we no longer see any value in the company's common equity," he said in a note.

Palm has been the subject of chatter that it might be an acquisition target, with Microsoft, Nokia and Dell often mentioned as potential suitors. On a conference call with analysts, Palm chief executive Jon Rubinstein downplayed such talk.