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Palm Q3 FY09 Conference Call Highlights

New Palm Inc LogoPalm Inc. today reported their seventh straight quarterly loss and one of their most financially difficult periods to date. Palm posted a net loss of $(98) million dollars on a total of $90.6 million in revenue. Smartphone sell-through for the quarter came in at 482,000 units, down nearly 20% from the previous quarter and down a whopping 42% from the same period last year.

While the same quarter saw Palm's triumphant, Palm Pre and webOS unveiling, the company still struggled with rapidly declining sales of its existing smartphones and handhelds. Palm cited numerous pricing and volume declines which lead to a major hit on its revenue due which was also compounded by the poor economic environment and the numerous Sprint Treo Pro launch delays.

Palm's financial performance for the quarter was frankly terrible. For the first time in years, the company had an overall higher net loss than total revenue. However, the situation is not as dire as it would seem. The recent stock offering re-marketing effort raised an additional $103.6 million dollars for the company. The funds are expected go towards the general operating expenses and Palm Pre launch efforts.

Smartphones accounted for 85% of total revenue at $77.5m. Palm shipped 330k units to carriers with 482k units sold through. Handhelds accounted for $13.1m of revenue on 100k units sold through.

In another note, Palm took a $5 million charge due to a warehouse inventory theft at an undisclosed third party facility. Palm says they were insured for the loss and expects to recognize a recovery when they receive the insurance payment.

Palm CEO Ed Colligan described the quarter as a "challenging transitional period." He reassured investors that the company has sufficient working capital and they have made tremendous progress over the past months. He says the company has been "meeting or exceeding" on their strategic objectives.

Palm Pre Launch Hopes

Colligan did make a few remarks regarding the Palm Pre's current status and launch plans. He was pressed repeatedly for details in the Q&A session, but as usual, he did not get specific on details. He did admit that Palm is still working on "polishing up" both the Pre's hardware and software design. They are also working on the usual carrier certification process. Colligan said that there are no "show stoppers" remaining that would potentially delay its launch. He also said he is quite pleased with the efforts to date and that Palm has been overwhelmed with positive reactions and carrier interest in the product.

While he was constantly pressed for a timeframe or any details on the Pre's launch date, Colligan stuck to his "as soon as possible" and "first half of the year" mantras. At one point he did mention that Palm has the next 15 weeks to finish up and prepare for the consumer launch. This would seem to indicate that he is still planning for a late June launch at the earliest very latest.

And finally we will leave you with a quote. In the following clip from the call Ed Colligan talks about the future of WebOS from the Pre and beyond. He goes into the target market they had in mind when designing the Pre and the potential for WebOS to fuel a whole series of future products from Palm down the line.

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Takeaways from the earnings call

SeldomVisitor @ 3/19/2009 2:34:21 PM # Q
Pre expected within 15 weeks - that's by June 30th, BTW, but instead of "1st half" he said "15 weeks" and, IMHO, that sounds firmer for "late June" than before.

The Pre hardware is still being worked on.

The Pre software, of course, is still being worked on.

The SDK will be released in beta form to a selct set of developers after the Pre is released, then to the general developer population sometime later.

No one asked the critical "How much of what we saw was actually executed on a server and only displayed on the Pre?" question...sigh...nor "How much WILL those web services you mentioned in that SEC filing cost?"...

Oh well, we know some functionality is in the cloud rather than on the Pre (like XMPP messaging) so at least SOME will be "out there" and cost extra.


RE: Takeaways from the earnings call
Ryan @ 3/19/2009 3:36:36 PM # Q
Did you get the gross margin? Was it really only 5% this quarter?
RE: Takeaways from the earnings call
jca666us @ 3/19/2009 4:15:46 PM # Q
One thing I was shocked by was the 89 cent loss - analysts were predicting 59 cents. This news, plus the demo of iphone os 3.0 will help to deflate Palm's stock price over the next few days.

>Pre expected within 15 weeks - that's by June 30th, BTW, but instead of
>"1st half" he said "15 weeks" and, IMHO, that sounds firmer for "late
>June" than before.

Actually, 15 weeks puts them into early July. I don't doubt it will be released by June 30th., the question is what will they cut in order to make that date.

Within the next few weeks, Palm needs to (if they can) announce an actual release date.

>The Pre hardware is still being worked on.

Considering Chi Mei is supposed to be cranking out Pre's as we speak, it is not a good sign that the hardware is being "worked on" on at this late date.

>The Pre software, of course, is still being worked on.

They're likely figuring what they can remove so that they can still meet the "1st. half 2009" release date.

>The SDK will be released in beta form to a select set of developers after
>the Pre is released, then to the general developer population sometime
>later.

Assuming Palm is still in business.

>No one asked the critical "How much of what we saw was actually
>executed on a server and only displayed on the Pre?"
>question...sigh...nor "How much WILL those web services you mentioned
>in that SEC filing cost?"...

The web services might be pretty costly - they need to raise some serious cash quickly.

Here's one question I wish would get asked - HOW MANY Pre's will Palm need to sell in order to keep the company afloat for the long haul?

250,000 every quarter? 500,000 every quarter? A million???


RE: Takeaways from the earnings call
SeldomVisitor @ 3/20/2009 3:43:50 AM # Q
> Did you get the gross margin? Was it really only 5% this quarter?

Yeah, it was. More importantly, they expect the gross margin to remain that bad until (at least) 1st (fiscal) quarter 2010 (that is, until after the current quarter that ends May 31 - prePre):

== "...Gross margins for Q3 came in at 5.0% versus 20.1% in Q2.
== Contributing to the decline in gross margins were lower selling prices
== on our older product lines and the delay in the shipment of the Treo
== Pro. We expect our gross margins to improve in the future as we
== introduce our next generation of products and we begin to realize the
== results of our efforts to improve the efficiency of our supply chain and
== reverse logistics..."

They went on to say they expect GMs to increase to the 30% range after the Pre ships. An "analyst" (who actually seemed pretty good, IMHO) caught that and asked "Don't you need 30% just to break even?" and the answer was avoided:

== "...In terms of the break-even point, it's not the sort of information we
== have given out. And 30% as a long-term goal, we feel good about it
== based on what we know so far but it's early days..."

[one can check historical GM amounts compared to historical "break even" points to get an idea of what PALM needs to pull a profit]

The transcript is available:

http://seekingalpha.com/article/126932-palm-inc-f3q09-qtr-end-02-27-09-earnings-call-transcript?page=-1

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I told you so.

VampireLestat @ 3/21/2009 3:03:13 AM # Q
This is what happens when you spit in the face of once loyal customers like myself.

I bet they wish they had held onto a diversified portfolio of handhelds, phones and maybe even the folio (which is a great success in the form of the Eee PC).

What a shame.

RE: I told you so.
VampireLestat @ 3/21/2009 3:04:58 AM # Q
Capitalism and competition has a way of humbling arrogant corporate snobs and eliminating them eventually if they refuse to listen to customers.
RE: I told you so.
VampireLestat @ 3/21/2009 3:13:29 AM # Q
By the way, I am still using my Treo 680 but I am starting to look into my options into improving the technology I use.

The unlocked iphone is too expensive.
Windows Mobile phones remain strong contenders.
I will wait to see what the Palm Pre offers, but I unfortunately don't expect it to be:

1) GSM unlocked.
2) Affordable.

Those things of course are to consumer friendly and way beyond Palm Inc's understanding.

I expect the Pre to be overpriced by a company desperate for money, consumers will all go to the iphone or WM devices. If I was a betting man, I would say the Pre is Palm's last breath.

RE: I told you so.
SeldomVisitor @ 3/21/2009 4:02:08 AM # Q
> ...I expect the Pre to be overpriced by a company desperate for money...

I expect the Pre to be somewhat overpriced but also think Palm/Sprint could surprise us on that point. Palm/Sprint HAS formally written, however, that the Pre is aimed at the high-end consumer so maybe it'll simply be overpriced.

However, I think the Pre will need cloud-based servers to realize either "its potential" or maybe even "its demoed 'capabilities'", thus will be more expensive to USE due to extra-cost fees that Palm has yet to mention outside obscure SEC filings (BTW, I'm really disappointed none of those "analysts" have asked Palm about those cloud-based servers mentioned in the SEC filings...IMHO, those servers ARE the MOST important part of the Pre and all future WebOS devices planned by Palm).

Here are some sample extracts of one of the recent SEC filings:

== "...We will transmit and store a large volume of personal information in
== the course of supporting the Palm webOS products and related service
== offerings..."

== "...If we are required to allocate significant resources to modify our
== Palm webOS service offerings to enable enhanced access to the
== personal information that we transmit and store..."

== "...Despite frequent testing of the scalability of our Palm webOS service
== offerings in a test environment, the ability of our Palm webOS service
== offerings to scale to support a substantial increase in the number of
== users in an actual commercial environment is unproven..."

BTW - this latter quote could suggest a reason for Palm NOT wanting to sell too many Pres early in its lifetime!

== "...The Palm webOS service offerings represents a new service to
== consumers that we have not provided before..."

Etc etc etc.

- http://tinyurl.com/palmwebservices

As you can see, there is MUCH more to the Pre and its ilk than we have been overtly told. It will be interesting to see WHEN Palm decides to drop this particular bomb on the literally-unsuspecting potential customer base (I have seen ZERO mention of this extra-cost service ANYWHERE on the 'Net OTHER than my own comments about it!).

RE: I told you so.
SeldomVisitor @ 3/21/2009 4:16:41 AM # Q
Followon [wish we had "edit"!]...

Palm has changed their accounting method for the Pre and all WebOS-using devices. I vaguely (very vaguely) "remember" that a device that is largely software-based REQUIRES the change in accounting that Palm has mentioned. Palm did NOT say anything about software "on the web" in their "accounting change" notices.

I believe Palm has changed their accounting for WebOS-based devices BECAUSE the WebOS-based devices will require the web-based services Palm is going to be selling to realize their potential; that is to say, Palm will be changing/adding to web-based servers software thus will require this accounting change - software updates to the Pre itself have nothing to do with it.


RE: I told you so.
jca666us @ 3/21/2009 6:34:23 AM # Q
WRT Pre's pricing, Palm is in a bind.

Blackberry Storm - $99 with a contract
iphone 3g 8 gig - $199 with a contract
iphone 3g 16 gig - $299 with a contract

If they sell it for less than the base iphone - they won't make enough money. Apple can (and probably will) drop the price of the current iphone in order to compete (there is also the new iphone to be released in June - the effect on Pre sales is unknown).

If they sell it for substantially more than the iphone - they may not get the volume sales they need.

I'd guess they'll sell it for $249 (with a contract) tops. If it comes in at $299 or higher, they might be in trouble.

If there are mandatory web services that Palm can use to suck more cash away, they might have the effect of a lower base price ($199).

What I think is going to hurt Palm is all of these people who have Palm OS devices that are looking to upgrade. They purchase the Pre and attempt to install all of their old Palm OS apps and realize they don't work.

Let me ask the question; at this point, what would compel anyone to buy a Pre - beyond the keyboard and the four multitasking web apps?

RE: I told you so.
SeldomVisitor @ 3/21/2009 8:05:54 AM # Q
> ...Let me ask the question; at this point, what would compel anyone to buy
> a Pre - beyond the keyboard and the four multitasking web apps?

Uh...because it's the coolest device Palm has ever made.

Uh...not good enough?

Uh...

Uh...

Hmmm...

[I think the prosumer set - especially the medical profession - are going to have to be asking that question (beyond the early-adopter subset, of course). I'd think ANY WinMob/QWERTY phone would be a better bet at the current time than the Pre with its beta Epocrates (if it even has THAT at launch)]


RE: I told you so.
jca666us @ 3/21/2009 9:45:24 AM # Q
Hey Seldom,

When we heard about the Pre's "4 multitasking webapps" limitation, mention was made that more than 4 would affect performance.

The Pre - like the iphone - only has an 1150 mAh battery. For further comparison, Apple indicated that on the iphone, multitasking cut the phone's battery life by ~ 80%.

Has there been any mention about the effect of multitasking on battery life?

Carrying around a bunch of extra batteries in order to multitask betrays the (relatively) sleek form factor of the Pre.

RE: I told you so.
SeldomVisitor @ 3/21/2009 10:26:13 AM # Q
Palm has avoided anything firm about the battery other than to say "we're not going to let the battery run out":

== "...we will not ship a product that will not meet the battery life criteria of
== our standards..."


RE: I told you so.
jca666us @ 3/21/2009 10:44:07 AM # Q
What kind of answer is that? LOL!!!!!

You know, it's these kinds of details that make me very uneasy about the Pre.

RE: I told you so.
SeldomVisitor @ 3/21/2009 11:44:18 AM # Q
Their entire earnings conference call was like that.

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Purported Palm Phone Delay

SeldomVisitor @ 3/23/2009 3:45:06 AM # Q
http://www.digitimes.com/news/a20090323PB202.html

As with all Digitimes' links, this one is limited in lifetime for nonsubscribers.

As with all Digitimes' articles, take with a grain of salt as well.

RE: Purported Palm Phone Delay
SeldomVisitor @ 3/23/2009 9:21:41 AM # Q
Palm has responded to this and said the Pre remains on schedule.

No, they did not further comment on the "two Palm phones"...

RE: Purported Palm Phone Delay
hkklife @ 3/23/2009 9:39:57 AM # Q
My guess (story coming soon) is that the delayed handsets are likely another WinMob-based machine (a WM6.5-based Treo Pro refresh?) and a cheaper WebOS machine (Centro 2).


Pilot 1000->Pilot 5000->PalmPilot Pro->IIIe->Vx->m505->T|T->T|T2->T|C->T|T3->T|T5->Zodiac 2->TX->Verizon Treo 700P->Verizon Treo 755p->?

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Isn't it about time for sites like PalmInfocenter to...

SeldomVisitor @ 3/27/2009 5:55:02 AM # Q
...start being a little more PROactive and actually getting into REAL journalism where you find out facts yourself DIRECT from the source(s) rather than repeating Me-Too-Media-like what OTHERS publish?

How about a few calls to your fave insider contacts and find out more about the server based WebOS services Palm talks about, for example? IMHO, those services are THE differentiated thing about the Pre, yet NO ONE has published a peep about them!

So come on! Start the hoof work!

RE: Isn't it about time for PIC members to...
twrock @ 3/27/2009 8:07:26 AM # Q
...stay calm and STOP YELLING!

SV, seems the Pre is a device you WON'T buy, running an OS that even if it isn't vaporware, WON'T do the things Palm claims, and created by a company with NO HOPE. WHY do you care SO MUCH about all of this?

Relax. Take a deep breath. Have some fun. It'll all come out in the wash anyway.

Hmmm, on the other hand, you might be onto something here. I feel so much better after having yelled a little. I think maybe I need to do that more often. Thanks!

"twrock is infamous around these parts" (from my profile over at Brighthand due to my negative 62 rep points rating)

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