More Pain From Palm

The latest warning sends shares tumbling.
Author:
Publish date:

Palm

(PALM)

just can't seem to getit right.

The handheld-device maker's warning late Monday that it will miss itsquarterly guidance is yet another in a series of missteps that isturning off investors.

Palm said it expects

revenue of $390million to $395 million, compared with its earlier guidance of$430 million to $450 million for the second fiscal quarter because ofa delay in certification of its Treo 750 phone by a carrier widelybelieved to be

Cingular

.

Shares of Palm were recently off $1.12, or 7.3%, to $14.25 -- within $1 of a 52-week low.

But the profit warning is just a symptom of some of the biggerproblems facing Palm, whose management has lost investor confidence, saysPablo Perez-Fernandez, director of research and the risk manager atG-Square Asset Management.

Twice this year, Palm's management has missed its own guidance. In June,the company said revenue in its first fiscal quarter would fall belowexpectations. At the time, Palm CEO Ed Colligan cited

"transition issues" and said the salesgap in Europe would be because of new environmental regulations there.

That's too many excuses, says Perez-Fernandez. "The management ishaving execution missteps very often," he says. "If they hope toregain confidence, they have to set targets and meet those targets."

However, even without the latest certification delay, Palm wouldn't havebeen able to meet expectations, according to Tavis McCourt, an analyst withMorgan, Keegan & Co., which has a position in Palm. "We believe thecompany would have slightly missed revenue estimates even if initialshipments of the 750 were made, indicating that competition remainsfierce for Palm," he wrote in a Tuesday research note.

On the strategy front, Palm has not been nimble enough to stay astep ahead of the competition. Even as push-email gathered momentumand technology rivals acquired a stand in that segment, Palm hasstubbornly stayed out of the market. In November2005,

Nokia

(NOK) - Get Report

acquired independent wireless messaging player

Intellisync

as a way to extend into the enterprise messagingmarket.

Earlier this month,

Motorola

(SYMBOL)

bought

GoodTechnology

that put the company in competition with

Research inMotion's

(RIMM)

Blackberry service.

Palm, which has shipped fewer units than RIM over the course ofits history in the mobile device market, does not sell mobile emailsoftware like RIM does -- something that has continually annoyed analysts.

Palm may soon need to make an acquisition there to restore faith."They need to have a push-email initiative," says Lawrence Harris, ananalyst with Oppenheimer & Co., which does not hold shares or have abanking relationship with Palm. "They have a great OS, but they need toalso have an email solution."

Palm also may want to come out with phones that are trulypath-breaking in design and innovation. "If you take a look at NokiaE62 or the Blackberry Pearl, these are all becoming increasinglycompact and thin devices," he says. They probably need to make theTreo thinner, though there will be design compromises there."

The result of these miscues? Shares of Palm have been down 15% inthe six months since May 26, compared with a

109.5% rise in RIM shares.

The delay in the Treo 750 certification itself could prove to be aglitch rather than a setback. Palm has said it will ship the product early in its third fiscal quarter and make up a majority of the lost revenue.

But by then, the competition will have gotten worse. Palm will have missedthe big holiday season and the quarter will see other smart-phone launches by competitors.