Palm Slaps Itself (PALM)

Palm Inc. (NASDAQ:PALM) just can’t seem to get it right, even after it already warned.  The shares have just been battered and tattered after multiple problems and now it’s balance sheet is leveraged to boot.

We recently noted that its new management team from Apple and from Elevation Partners is not incapable at all, and they might be able to turn 2008 into a year where its shares could double under the right circumstance.  But the earnings and guidance put that ‘doubling status" further out of sight and it takes the name of Dr. Pangloss to find forgiveness.

Palm posted a net nine-cent loss and a non-GAAP loss at -$0.07 EPS versus and non-GAAP loss estimate of -$0.08 from First Call.  Revenues were $349.6 million compared to a rough estimate of $350 million.  But here is the kicker.  Its sell-through rates for smartphones were up 11% to 686,000.  Analysts were looking for somewhere between 700,000 and 750,000 depending on whom you talk to.  Based on the recent warning we would already expect that to be lower than the estimate, but it is still ugly. 

To pour salt on the wound Palm is guiding earnings per share to -$0.14 to -$0.16 EPS, and estimates were -$0.04 to -$0.08 depending on which source you use and which update is deemed more current.  Same goes for the $310 to $320 million in revenues.

Here is one way to hide the bad news and turn traders against you: The company will suspend specific financial guidance in future quarters, but will continue to provide general business guidance and comments on industry trends.

Right after the report, Palm shares were down 4% after hours.  But now then they traded down about 8% to $5.93 before coming back a bit.  There was a mid-day spike up and Palm closed up almost 5% on some hopes that Elevation partners would just take it private to avoid the problems.  If they loved it in the teens, they gotta love it down close to $5.00.  Maybe musicians don’t need to be the main backers of public companies.  Frankly we would have expected much to some of this to be factored in already, but it seems that the market just doesn’t want to trust underperforming and under-delivering companies in a time of market turmoil like we have been seeing.

In the last "10 Stocks Under $10" Weekly Newsletter, we noted how it appears that Palm shares are toast for the time being.

Jon C. Ogg
December 18, 2007

Jon Ogg can be reached at [email protected]; he produces the SPECIAL SITUATION newsletter and he does not own securities in the companies he covers.