Merrill Lynch turns bearish on Palm, slashes stock price targets | webOS Nation

Merrill Lynch turns bearish on Palm, slashes stock price targets

by Derek Kessler Tue, 23 Feb 2010 10:44 am EST

Palm billboard It wasn’t that long ago that Merrill Lynch analyst Vivek Arya was all gung-ho about Palm, placing the stock in the buy column with a $20 price target. But Arya’s optimism seems to have faded, and he has not only moved Palm into the underperform (i.e. sell) column, but has slashed the price target in half to just $10 a share.

While Arya believes that Palm’s webOS is better than most mobile operating systems, he said that “Palm’s superior platform features have not translated into sufficient carrier support and consumer demand, and we are concerned the window of opportunity may be closing as Google’s Android ecosystem gains ground, {Research In Motion] revitalizes its portfolio, iPhone increases its presence, and as Microsoft reboots its efforts with Windows Phone 7.” Additionally, he is concerned by Palm’s cash resources - at the end of the last quarter Palm had just $590 million on hand - money that Palm is burning through incredibly fast.

Arya has also noted something that we have heard a lot of: while Verizon staffers are generally knowledgeable about the Pre Plus and Pixi Plus that their stores carry, they are tending to push the Motorola Droid, HTC Droid Eris, and BlackBerry devices over the newer Palm smartphones. Even if Palm manages to add AT&T and T-Mobile to their carrier partners list, Arya doesn’t expect a significant boost in unit sales. With all that in mind, he has cut his prediction of how many units Palm will move in the coming quarter to 900,000 (down from the 1.1 million previously expected). Arya doesn’t expect Q4 to be much better for Palm, anticipating 1.2 million units shipped in the quarter, a cut of 300,000 from previous estimates.

There is one positive note, and it’s that the heavy advertising campaign that Palm has put on seems to be paying off with stronger sell-through (presumably at Sprint and Verizon stores). But amongst all this doom and gloom, it’s just a glimmer of hope as the expensive campaign is being supported by Palm’s diminishing cash pile.

Read: Barron’s