We may be one of the only people watching cellular that are not convinced that Palm will survive for very much longer. It look less and less likely despite Palm’s new WebOS strategy and its Pre and related designs. However US investors showed a big lack of perspective in pushing another $360 million into Palm’s hands in a public stock offering. It is up against multiple industry giants, some 40 times its size, and others with the innovation of Apple behind them, and yet US investors continue to see Palm as something worth saving.
Our own investment partners in the US, TownHall Investment Research is downgrading Palm to unfavorable saying that sales are slow and slowing further and that this will lead to a reduction in earnings. TownHall says that it can only see that Palm sold 648,000 Pre units into the Sprint channel during the quarter and that actual customer activations was closer to 375,000 units, all of which suggests that the channel already has 11 weeks of supply of the Pre.
Palm has dramatically reduced revenues at only $68 million for last quarter, which it says is mostly because of an accounting change on revenue recognition, It says that if it had not changed its accounting, revenues would have been a far more respectable $360.7 million, which was still down, but not by much.
But none of this was enough to put off investors, who not only took up the stock that Palm put up from grabs, but demand forced the company to upgrade the shares on offer from 16 million to 20 million and for this to be oversubscribed, with the underwriters taking a further over-allotment option of 3,000,000 additional shares.
Palm said will use the proceeds for working capital and general corporate purposes and it reaffirmed its outlook for the year.
It’s straightforward, Palm lives or dies on the performance of WebOS and the Palm Pre, and over 50% of its sales came from those product lines last quarter, which means other revenues streams are fading fast. The Pre only needs a blip, such as an oversupplied market and inventory build up and Palm will issue horrible figures.