There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.
Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed
The stock in handset maker Palm (PALM) has had a nice ride recently on speculation that Nokia (NOK) may buy it. But, prior to that the stock had dropped from $24 last April to $13.75.
Palm has been left behind by the growth of Research In Motion (RIMM) and new entries into the smartphone businss like Motorola (MOT) and Nokia.The Apple (AAPL) iPhone is also not good news for the company. Palm’s use of its own internally created software has also hurt its growth.
The challenges to Palm’s market share are starting to catch up with it. In its Novembe quarter, revenue fell 12% and the company lowered its outlook. JP Morgan. looking at the company’s prospects, cut its rating on the firm from "neutral" to "underweight" saying the company’s product line is stale and that price-based competition is likely to weigh on average selling prices and gross margins, according to MarketWatch.
Palm has also made it clear that it understands it will have to drop price if it wants to gain share from larger rivals. This is probably a downward spiral. If share does not pick up, all the company has accomplished is a drop in its income.
As Rick Summer of Morningstar said: "For years, customers looking for a smartphone had only two choices: Research in Motion’s RIMM Blackberry and Palm’s Treo. Now that handset giants Motorola MOT and Nokia NOK have entered the fray, we believe Palm’s luster will begin to fade."
Palm may find a buyer, but management can’t fix its problems.
Douglas A. McIntyre can be reached at [email protected]. He does not own shares in companies the he writes about.
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