End in sight for Palm as forecasts cut?

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End in sight for Palm as forecasts cut?

Chances of surviving the year as an independent player seem dim following Verizon's latest blow to webOS

By CAROLINE GABRIEL

Published: 26 February, 2010

READ MORE: Financial | Palm | Handset | WebOS

Palm's chances of surviving the year as an independent player seem dim, following a warning that third quarter figures will disappoint, and talk of Verizon Wireless turning against the vendor's smartphones.

The company has cut its revenue forecast, sending its shares into freefall. Inevitably this has reignited the constantly smoking rumor mill about possible acquirers, but with Palm's make-or-break products, Pre and Pixi, failing to woo operators or consumers, the dowry it would bring any purchaser is clearly being devalued - to the extent that nobody may want to bid.

Despite initial buzz around Palm's exclusive deals with Sprint Nextel and Telefonica O2, both carriers experienced lukewarm sales and started to turn their marketing budgets to other handsets. Then new hope came when Verizon Wireless launched some slightly updated versions of the products, Pre Plus and Pixi Plus. However, the cellco has marketed the phones in a lackluster manner, and they have been overshadowed by other new offerings like Motorola Droid. Now Palm has admitted uptake has been disappointing and carrier orders lower than anticipated, and in some quarters there is even talk of Verizon discontinuing the range.

Few hope for anything better at AT&T, which will launch its own Palm devices before the summer - but as part of a broad new line-up, designed to reduce its reliance on the iPhone exclusive. With Android, Symbian and Windows smartphones in the mix, and the iPhone deal still standing, Palm will fight for exposure at AT&T, and could even be overshadowed by the Brew-based HTC Smart - a textbook example of how to make a midrange, fairly ordinary phone seem far more desirable than its mere specs would suggest.

By contrast, Palm's Pre and Pixi have a super-modern software platform and many appealing features, including the 'hotspot in a phone' added in the Plus versions, but seem unable to persuade consumers that they have the allure of the Droid, iPhone, HTC Bravo or other offerings. And things will only get worse as more high end handsets come to market, such as the HTC Desire and Samsung Galaxy Plus, leaving Palm with insufficient cash to create and market its own revamp of the range.

All eyes are now on the next move from Palm's main backer, Elevation Partners, which has poured $425m into keeping the firm running. Even with a market cap of just $1.12bn, acquirers are staying away.

In its statement, Palm said third quarter revenue will be between $285m and $310m, while non-GAAP revenue will be between $300m and $320m. Wall Street was looking for a far higher figure, around $424.7m. For fiscal 2010, Palm said its revenue will be "well below its previously forecasted range of $1.6bn to $1.8bn", saying that carriers have reduced device orders or pushed them to future quarters. CEO Jon Rubinstein said in his statement: "Driving broad consumer adoption of Palm products is taking longer than we anticipated." Although Palm still has about $590m in cash, this may prove to be longer than it can live with.