What Palm Needs to Do Next

Palm has effectively skipped the entire year 2007 generation of smartphones. It needs to hit a whole new feature level in 2008, probably including things such as haptic feedback, a new level of video camera performance, motion control, etc. -- all while making up the ground it has lost.

And what is the company doing? Focusing on launching a 2.5 pound miniature laptop. This smacks of desperation.

No Angel

So does selling just a 25% stake in the firm.

I like Bono; Joshua Tree used to be one of my favorite albums. But Elevation Partners, the private equity group he helped launch, only made its first deal in November 2005. It is the very definition of a greenhorn.

Palm obviously would have preferred a full buyout by an experienced fund or a major phone vendor. The fact that the company was unable to land a buyer even in the current superheated M&A environment is revealing.

Elevation Partners is probably a better fit for Palm than a fund spearheaded by Taylor Dayne or the Beastie Boys. But a few hundred million dollars and an Apple guru will not change the scale of the R&D challenge the company faces.

The March takeover speculation took Palm shares over $19. This new deal couldn't boost the stock even to $18. The takeover speculation is now bound to dwindle -- and Palm's price-to-earnings ratio topping 25 will be a burden when people start scaling back the 2008 estimates later this year. I find it hard to see how Palm can grow its 2008 earnings by even a cent. The rapidly aging old product line will be a heavy burden to bear even if one new winter model is competitive.

>To order reprints of this article, click here: Reprints