Joseph To downgraded
to buy from strong buy, telling investors that the handheld maker could end up getting crushed by
decision to slash prices and toss its inventory into stores.
"We believe pricing on the low end of the product spectrum will become more aggressive as Palm and Handspring seek to move inventory through the channel through Dads and Grads seasonal promotions," he wrote. "We believe Handspring may look to take a more proactive approach to the situation after having been held hostage by Palm's pricing over the past month."
In other words, this means war. And if Handspring decides to fight price cuts with price cuts, then both stocks are due to come under some fire, according to To. He told investors to expect the stock to trade in a pretty tight range about 2 to 5 times calendar 2001 revenues. Currently, the stock trades 4.7 times calendar 2001 revenues.
"Given this and the anticipated price cuts in May, we believe the stocks could undergo near term pressure," he wrote.
To is not alone in this view.
analyst Charlie Wolf downgraded the company a few weeks back, citing many of the same reasons.
If they're right, bad could get worse, exacerbating the sector's poor performance in 2001. Handspring is off 55% year-to-date, missing the rally that has pushed the
Nasdaq Composite Index away from its lows. Palm is off 65% and currently trades at $9.75, far short of the $99.31 it spiked to during the first week of trading.
As Tish Williams pointed out
two weeks ago, hacking away at pricetags and lowering profit margins could be deadly for the handheld market -- at least in the near-term.