The Palm Margin Squeeze (PALM, S, AMZN, WMT)

Palm, Inc. (NASDAQ: PALM) has sort of already fallen from grace despite all the hype behind the Palm Pre.  Throw in that Pixi too.  Discounting is trumping what may be weaker sales.  It turns out that Amazon.com (NASDAQ: AMZN) is offering the Palm Pre for Sprint for a mere $79.99.  Sprint Nextel (NYSE: S) has it offered direct at $149.99 price after discounts and rebates at its site.  Sprint Nextel is also selling the Palm Pixi for $99.99, but the Palm Pixi is now for sale for $24.99 at Wal-Mart Stores (NYSE: WMT).  We confirmed all these prices on the websites, and this is going to confirm tough times for Palm and its finances.

Discounting is not unusual, particularly as more and more competition is heating up in the space.  But the Palm Pre was discounted very fast out of the chute, and then the geared down Palm Pixi, with the worst name by the way, seemingly came on to the market too soon.

There is no way that this sort of discounting cannot rub off on Palm.  Even though the discounts are usually at the retail level and subsidized by two-year contracts, the merchants usually turn on the suppliers for cuts.  That translates to the notion that Palm will have compressed margins and now it will likely have to make even more unit sales to hit its revenue targets in a highly competitive market.

Palm shares are down just over 3% at $11.26 on only about 93,000 shares as of 9:15 AM EST.  As a reminder, the most recent short interest data showed a short interest of 45 million shares in Palm.

JON C. OGG
NOVEMBER 20, 2009