The end may be near for Palm

  • Los Angeles Times
  • Friday, March 19, 2010 10:45pm
  • Business

After nearly two decades of putting cutting edge personal electronic devices in the hands of consumers, Palm Inc.’s grip on survival may finally be slipping.

The smart-phone maker’s stock plunged nearly 30 percent on Friday after several Wall Street analysts offered grim assessments of the company’s future.

“They might be going bankrupt,” said Vitali Savitski of Canaccord Adams, which urged investors on Friday to sell the stock after making a highly unusual prediction that he expected the value of Palm shares to dwindle to zero. “There’s still some hope, but we think it’s still a very risky buy.”

The analysts remarks came a day after the company said it sold far fewer phones than it had hoped to in the third quarter, and that the next quarter would likely be worse.

“Our recent underperformance has been very disappointing to me personally and to the entire Palm team,” said Chief Executive Jon Rubenstein during a conference call with analysts Thursday.

Palm shares fell $1.65 to $4 on Friday. The stock has slipped more than 60 percent this year.

Palm’s fate may be tied to the success or failure of its newest line of smart phones, the Pre and Pixi. The Pre debuted last summer to strong reviews and quickly sold out in many retail stores, marking an early victory for both Sunnyvale, Calif.-based Palm and its exclusive wireless carrier, Sprint.

But then the phones stopped ringing. In each of the two quarters after the Pre’s release, sales dropped nearly 30 percent, and by the end of February, Palm had sold only 408,000 of its Pre and Pixi smart phones over the previous three months. That was far behind competitors like Apple Inc., which sold 8.7 million iPhones in its fiscal first quarter.

By January, Palm’s share of the smart phone market had dwindled to 5.7 percent, and it was surpassed for the first time by mobile newcomer Google Inc., which leapfrogged Palm with the help of its much-hyped new touch-screen models, including the Droid and the Nexus One. Palm is now far behind the market leaders Research in Motion, whose BlackBerry models own 43 percent of the market, and Apple’s second-place 25 percent, according to research firm ComScore, Inc.

Analysts said a weakened Palm could eventually become an acquisition target of larger electronics makers looking to add a powerful suite of mobile software to their portfolio.

“If you’re LG or a Dell or an HP that wants to be in this business but doesn’t have an operating system,” Palm might look attractive, said Tavis McCourt, an analyst at Morgan, Keegan and Co., Inc. “But whether somebody wants to pay $1 billion for that, it’s hard to know.”

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