Palm CEO: Pre would have done better than Droid if it launched first, 4th Quarter to be grim | webOS Nation

Palm CEO: Pre would have done better than Droid if it launched first, 4th Quarter to be grim

by Derek Kessler Thu, 18 Mar 2010 8:12 pm EDT


We just finished listening to Palm's earnings call for Q3 2010 and while there's nothing that will blow your mind, there were a few tidbits we thought we should point out. First - we'll just say at the outset that our longstanding concern about passion and knowledge about webOS inside Verizon was confirmed and then some - CEO Jon Rubinstein alluded to the challenges Palm faced launching after Droid a few times. Our favorite was when he expressed his own opinion which is pretty much mirrors ours: 

We had an arrangement with Sprint that when we launched with Sprint that they would invest in marketing and carry the product and for that they would get an exclusive for a period of time. That really determined when we could do our launch at Verizon. I agree with your premise that if we could have launched at Verizon earlier, prior to Droid, that we would have gotten the attention that the Droid got and since I believe that we have a better product, I think we would have even done better.

More analysis of the earnings call - including why the coming quarter is most likely not going to be great for Palm - after the break.

Given how poorly the Verizon launch of the Palm Pre Plus and Pixi Plus has apparently gone, Palm has obviously been dealt a blow in both marketshare and financial stability. To make things worse, Palm CFO Doug Jefferies announced during the conference call following the Q3 FY2010 results that Palm doesn’t expect the next quarter to be so hot either. A lot of the good news with regards to Palm’s cash burn during Q3 FY2010 came as a result due to shipments to carriers that arrived earlier than expected. Those revenues were expected earlier in Q4, so that income will not be accounted for during the results due in three months.

Palm additionally has a dual problem of inventories. Nearly half a million extra Palm devices ended up as unsold inventory at the end of Q3, while Palm barely sold 400,00 units during the quarter to end users. At the same time, carriers have both reduced and deferred to later dates their orders. Palm is putting increasing focus on selling this backlog of devices instead of shipping more devices to carriers. CEO Jon Rubinstein did indicate that there have been no changes to their planned carrier launches, but what carrier launches those are (if any) was not revealed.

All of this is going to conspire to act negatively on Palm’s expected revenue for Q4, which Jefferies predicted to be less than $150 million on non-GAAP reporting measures. In the just-ended quarter Palm brought in $366 million (again, boosted by earlier-than-expected shipments). At the same time, gross margins are expected to fall into the mid-teens due to increased manufacturing overheads, the aforementioned lower sales volume, and planned promotional incentives. That said, expenses will be lower during Q4 as compared to Q3, but cash burn rate will be higher.

Palm is focusing on cutting and deferring costs where possible to make it through this coming quarter. Jefferies admitted that though Q4 is not expected to be pretty, future quarters are expected to bring marked improvement. Palm has elected not to provide specific guidance as they have in recent quarters.

In short - there's a glut of webOS inventory in the carrier channels and until Sprint and Verizon can churn through those, Palm will likely have a grim quarter. Additionally, when asked if the Q4 numbers indicated that Palm might not get an AT&T launch executed in the 4th quarter, Palm declined to comment (naturally) - but it didn't sound like a crazy question to us.

Finally, Rubinstein refused to close the door on speculation that Palm would be purchased or would license their OS to other hardware manufacturers - but he certainly didn't seem coy or enthusiastic about the prospect of either. Bottom line: Palm's a public company, so Palm has to do what makes best business sense - but our sense from the tenor of his comments is that Palm continues to want to go it alone.

Leading up to today’s announcements, shares of Palm’s stock were up 5.21% and closed regular trading at $5.65. After the no-as-bad-as-expected financial results were announced after market close, after-hours trading of Palm shares continued at around the same level. However, once Jefferies revealed that the better than expected results were due to earlier-than-expected incomes and that Q4 would be significantly worse, Palm shares plunged in after-hours trading more than 12%, dipping below $5 a share for the first time since January 2009.

additional reporting on this article by Dieter Bohn