Palm's (PALM) Drooping Pre/Pixi Sales, Takeover Potential Not Enough Reason to Keep in Your Portfolio - Barron's
Palm (NASDAQ: PALM) shares are sliding drastically after hitting a peak of $18 last September, closing at $6.09 last Friday. The company had won over the Street with the launch of the Pre and webOS last year, both great pieces of equipment. The only problem? No one is buying their phones.
According to Barron's, the company had something of a renaissance at the 2009 CES in Las Vegas with the introduction of the Pre smartphone and webOS. The company carried out many of its promises to investors, even unveiling newer versions, the Pre plus and Pixi plus, and expanded carriers from solely Sprint (NYSE: S) to Verizon (NYSE: VZ) as well. The company has an application count that is on its way to rival Apple's (NASDAQ: AAPL) App Store, and Palm has expanded to carriers outside of the U.S. as well.
However, investors were caught off guard when the company reduced its estimated revenue guidance well below the Street estimate of $424.7 million, to between $285 - $310 million...a significant cut. The problem, management said, is a slow adaptation to the company's products.
In other words, their products aren't selling.
Barron's believes that the fault isn't with Verizon sales reps, Verizon support, or poor advertising. The issue is the size of Palm. The company, with a market cap of $1.02 billion, is far shy of competitors Apple [$185.5 billion], Motorola [$15.64 billion], and Nokia (NYSE: NOK) [$49.95 billion]. Research in Motion doesn't provide direct market cap stat's, but with about 556,913,000 shares outstanding, the estimated market cap is about $7.41 billion.
AT&T (NYSE: T) announced that they would begin to carry the Pre by the end of 2010, and rumors are circulating around T-Mobile as a carrier.
If a take-over is a possibility, Barron's thinks that the two main candidates to make a bid for Palm are Hewlett-Packard (NYSE: HPQ) or Dell (DELL). Both have interests in the expanding smartphone market, but not a strong foothold.
Risks for a investors anticipating a takeover include the lackluster sales of the Pre and Pixi and a bid alone is not a good enough reason to own the stock. An analyst at Deutsche Bank says that without some surprising, positive news, the stock price might trickle back down to $3 per share.
It might be time to hang it up on Palm.
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