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Palm Minnow is Swimming with Sharks

Palm CEO “I’ve never used an iPhone” Rubinstein quoted in the earnings conference call:

“We had an arrangement with Sprint that when we launched with Sprint that they would invest in marketing and carry the product and for that they would get an exclusive for a period of time. That really determined when we could do our launch at Verizon. I agree with your premise that if we could have launched at Verizon earlier, prior to Droid, that we would have gotten the attention that the Droid got and since I believe that we have a better product, I think we would have even done better.”

So we are led to believe Droid launched into a window in Verizon’s launch schedule. A window which was shut to Palm due to their exclusive with Sprint. It’s a matter of timing.

Then again, Droid got $100 million in advertising and marketing budget from Verizon and Motorola. It’s unlikely that Palm could leverage that kind of muscle, and their product ended up being positioned on a female demographic.

Palm was either late or under-funded or mis-positioned or all of the above.

Essentially, Palm’s problem is not the quality of the product (which is arguable) but their ability to market and distribute in a highly competitive market. In other words, it’s not that they’re not smart enough, but that they’re not strong enough.

Sadly, it’s not enough to be smart or good. They’re in the wrong market if they think having a clever product is a winning strategy. Mobile Computing is the toughest technology market today. Because the stakes are so huge, it’s a market that is targeted by enormous resources.  This is no place for start-ups.

Palm is simply too weak to make it.


  • M

    Do you think though the stock is undervalued at $4? What would you estimate its takeover value would be? I'm thinking this is a good time to buy, what with all the naysayers.

  • http://asymco.wordpress.com asymco

    I tend to agree with those analysts who have a target price of $0. Of course that's a long term (12 mo.) target so in the mean time there might be opportunities to gamble.

    The company has a cash value above zero (book value which is net cash) but the expectation is that they will burn through all that cash in 12 mo. The company also has some IP assets but their value is completely arbitrary without a court test, so it's anybody's guess what someone would pay for it.

    The main argument against an acquisition is that it has not happened yet. There were many times when the company would have seemed a logical purchase, but the fact that nobody did buy it indicates some structural problems.

    As it is, the company is a distressed asset suffering from the financial cost of distress, which makes it even less likely to be bought regardless of its price–rather paradoxically but that's the psychology of "damaged goods" thinking.

    If they can get some cash flow momentum, it might become more valuable, but again the fundamentals don't look good because of competitive pressure.

    As a rule I never recommend companies which have poor fundamentals. I did not believe they were viable a year ago when everyone was applauding them and I don't think anything has changed. Of course the stock soared in between then and now.