Palm Placed on Death Watch

SUNNYVALE, Calif. ( TheStreet) -- The future's not looking particularly bright for Palm ( PALM).

A huge inventory oversupply, a sales forecast cut in half and a roaring cash fire make Palm's chances for survival slim.
Palm

Palm reported mixed fiscal third quarter results and troubling projections for the current quarter ending in May. Looking ahead, the company says sales will fall below $150 million in the quarter, which is more than 50% below the analyst target of $305 million.

Palm "experienced unforeseen challenges from intense competitive marketing efforts to our own execution in these steps," CEO Jon Rubenstein told analysts on an earnings conference call Thursday. Palm's latest shocker further illustrates the difficulty the upstart phone maker is having in a market dominated by Apple ( AAPL) and Research In Motion ( RIMM).

It also points out that Palm's inability to earn Verizon's ( VZ) full support -- known as the Verizon snub -- was a pivotal moment in the company's turnaround effort.

In a positive surprise, the company said it was able to get through the quarter without depleting its cash supply. But executives added that a bigger-than-normal bill will come due this quarter.

There's nothing quite like falling sales and rising costs to trigger the code blue alert on a sick company.

Analysts didn't waste much time on best case scenarios Friday. Canaccord Adams cut Palm's price target to $0 from $4, and Kaufman Brothers and Morgan Joseph cut Palm's rating to sell.

Palm says it has $592 million in cash available, but executives didn't provide a specific cash burn forecast for the current quarter or provide an answer to how many quarters it can continue to operate.

Morgan Stanley analyst Ehud Gelblum estimates Palm's fiscal fourth quarter cash burn will be about $148 million. If true, that will consume 25% of Palm's cash, leaving the company with $444 million left to live on.

Assuming the quarterly cash burn moderates to a mere $100 million a quarter, Palm has about a year's worth of cash left.

Investors don't seem eager to wait that long. Palm shares fell $1.05, or 18.6%, to $4.60 in premarket trading Friday.

--Written by Scott Moritz in New York

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