Palm's Future Debated After Lousy Q3

By Michelle Maisto  |  Posted 2010-03-19

Palm's Future Debated After Lousy Q3

Palm's poor third-quarter performance may be the result of bad choices, paired with the difficulty of rallying support behind a new mobile platform. While an aggressive ad campaign could help, it can't be the only answer to Palm's woes, industry analysts say.
On March 18, the maker of the Pre and Pixi mobile devices reported selling only 408,000 smartphones during the quarter-a loss of 29 percent from the second quarter of the year and 15 percent year over year.

"Our recent underperformance has been very disappointing, but the potential for Palm remains strong," Palm Chairman and CEO Jon Rubinstein said in a statement.

Not everyone shares the same optimism. The company's stock price was hammered March 19, dropping as much as 18 percent. Several Wall Street analysts were quoted in publications as questioning Palm's viability. Morgan Joseph analyst Ilya Grozovsky was quoted in the Wall Street Journal as saying Palm's "death spiral is accelerating."

Grozovsky said Palm's problems will only get worse as carriers and suppliers "increasingly question the company's solvency and withdraw their support."

Analyst Neil Mawston, with Strategy Analytics, said he believes Palm made some wrong moves, but there's still hope of getting back on track.

"Palm made two decisions last year that, in hindsight, were far from ideal," Mawston told eWEEK. "First, Palm initially launched its flagship Pre with Sprint, a struggling operator that lacked the marketing clout of the big two, Verizon Wireless and AT&T. And second, the launch timing of the Pre was very close to the launch of the Apple iPhone 3GS. Right from the get-go, Palm did not maximize its mind share and much of the early publicity for the Pre was crowded out by the iPhone hype."

Expecting a disappointing quarter, Rubinstein warned Wall Street Feb 25 and sent out a companywide memo to encourage employees, saying several awareness-raising initiatives, including a massive ad campaign, were under way and asking them to remain "laser-focused" on any means of driving sales.

"Our goals are taking longer than expected to achieve, but I am still confident that our talented team has what it takes to get the job done," Rubinstein wrote in the memo.

"Advertising is table stakes," Endpoint Technologies analyst Roger Kay told eWEEK. "Apple has managed to use the media as free advertising, but they're the exception. ... [A company] like Palm can't let up on their advertising expenditures, and just because they spend doesn't mean people are going to buy. All advertising does is tip people to the product, and the product has to carry it from there. If the product isn't catching on, no amount of advertising is going to change that."

What Palm Needs to Do


Kay added that introducing a new phone is a delicate undertaking relying on a number of factors, including the need for a great platform-which no one has denied that Palm has in WebOS-as well as a strong user experience. There's also the matter of whether the channel is really ready to support Palm.

"It's another distinct platform, and distribution has to agree to support that. That means tech support, inventory, etc.-every aspect is another increment in expense for the distribution channel, as well as a risk," Kay said. "And right now, that's still an open question with these guys."

Palm did expand beyond Sprint: On Feb. 1 Verizon Wireless began offering updated versions of the Palm devices, renamed the Pre Plus and Pixi Plus. While access to Verizon's customer base and marketing resources offers hope of increasing the devices' sales figures, some doubt whether Verizon-which also sells the popular Motorola Droid-can help Palm as much as is necessary.

Strategy Analytics' Mawston said product is king for Palm, and a "breakthrough model sold [through] a premier operator, such as Motorola did with the Droid at Verizon Wireless," could still spell a comeback for Palm.

Mawston added that he believes Palm could also benefit from eliminating the need to gather support for WebOS.

"Palm cannot afford to sit on its hands and it must move urgently to upgrade its product portfolio," he said. "Tough times call for radical thinking and perhaps Palm should examine the possibility of working with Android in 2011, because this would give Palm access to an off-the-shelf suite of software and services with good momentum and high brand awareness."

Palm announced in its fiscal statement that it shipped a total of 960,000 smartphones during the quarter, hinting that, should Palm's big new marketing push-which includes an ad campaign covering billboards, bus shelters, buses and subways-not pan out, its fourth quarter may be affected by inventory.

"The work we're doing to improve sales is having an impact, we're making great progress on future products and we're looking forward to upcoming launches with new carrier partners," Rubinstein said in the statement. "Most importantly, we have built a unique and highly differentiated platform in WebOS, which will provide us with a considerable-and growing-advantage as we move forward."

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