Palm Pre OS Updates: Free, Easy. | webOS Nation

Palm Pre OS Updates: Free, Easy. 5

by Dieter Bohn Thu, 19 Mar 2009 6:20 pm EDT


After posted some internal Palm documents, the story's been making the rounds that Palm is planning on accounting for the Pre on a subscription basis (much like Apple does) and so they won't "realize" the revenue from Pre sales right away.  This is true and very good news, as it means that Pre owners will benefit from free OS updates including what could potentially be significant feature upgrades for up to two years after they purchase the phone.  Whether such features upgrades will actually come is another matter (Palm's history on this is pretty poor, but they have turned over a new leaf).

We actually reported this very news back on March 2nd at, when discussing Palm's preliminary Q3 numbers (the final numbers will be reported any minute now).  The notable portion goes a little like this:

Finally, if you were hoping for a gigantic revenue bump at the launch of the Palm Pre, think again.  Since Palm intends on offering free feature updates to the webOS, they will need to account for the income the Pre generates over a 2 year cycle (similar to how Apple accounts for the iPhone) instead of at the moment of sale. 

In other words, Palm's balance sheet revenues (thanks John in the comments!) will continue to look fairly grim even though they're selling plenty of Pre Phones and are benefiting from the cash those sales bring in.  Just an FYI to you stock watchers out there.

Just as important as the free updates is this: those updates will happen will be easy.  Way back in January at CES, I asked Palm about whether OS updates would be as convoluted, hard to install, and infrequent as they were on PalmOS devices like the Treo 700p.  The Palm rep smiled, shook his head, and said "Those days are over."  It's not clear that Palm has nailed down the details yet, but users should be alerted to new updates over the air (and some updates may even be applied over the air), and larger updates should be fairly simple to apply.



Sorry to nitpick the financial stuff (this is not really a financial forum, skip if you don't care), but as long as we're discussing it...

The effect of the unit sales of devices on Palm's BALANCE SHEET is positive, because they get a lump of cash from the device sale up front. That's where assets (like cash) show up. Their PROFIT & LOSS (P&L) statement will only recognize the revenue (not the same as cash, mind you) and expense over the "economic life" of the phone.

If you're worried about Palm's viability, you should be heartened by the positive impact on their balance sheet (cash arriving quickly in the bank at launch). If you are a shareholder, you might be somewhat less excited given that the revenue (and margin) will ramp up more slowly as the revenue (and expense) are recognized. But one would imagine that the market will be heartened by the "guaranteed" nature of the revenue stream, and thus will give some credit for it in the price of the stock.

Anyway, had to get that out of my system. We don't want Jon Stewart to come down on PreCentral's financial news team, do we?

Sorry to nitpick back but that isn't how it works.

Palm also pays for production that way (they don't make the handsets). If you look at their financial it seems no money for contract manufacture of the Pre has been spent yet and the large bulk of production costs are not on the books yet.

Historically the revenue steam on smartphones shows a loss until after one year. It isn't just about R&D expensed so far, it is unjournaled costs such as production , marketing (typically $50 million), and a spike in support costs, against revenue from bulk sales to carriers and this is going to run red for one year from now even if Pre does exceedingly well.

In Palms case it isn't just the red over the next year, it is the going to be the very very narrow cash flow to cash on hand that is daunting.

I'm also not clear on how it works, but I switched it to "Revenue". Thanks guys!


How about Palm Pre let some other carriers sell their phone and not just Sprint?!