Palm's Last Best Hope? - InformationWeek

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Commentary
8/27/2009
08:23 PM
Ed Hansberry
Ed Hansberry
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Palm's Last Best Hope?

Palm, who arguably created the PDA market, had nearly vanished from existence compared to the onslaught of products from competitors, products which were running shiny new operating systems. The Pre launched to much fanfare in June on the Sprint network in the US. Now, nearly three months after it arrived, how is it performing as the platform and device to save Palm?

Palm, who arguably created the PDA market, had nearly vanished from existence compared to the onslaught of products from competitors, products which were running shiny new operating systems. The Pre launched to much fanfare in June on the Sprint network in the US. Now, nearly three months after it arrived, how is it performing as the platform and device to save Palm?A CNBC Europe Business article takes a look at Palm's current status and the possible effect the Pre could have on it. They estimate that 300,000 Pres have sold since launch. While impressive for a first product, it is well below the 100,000 per week estimates we were hearing about early on. Either they were wildly inflated, or there has been a huge drop off since that first week.

As the article notes, Palm desperately needs the cash from a successful device. They have $390M in long term debt according to their latest SEC filing. $4 million is due annually until 2014, when the balance of $378 million is due. The interest payments though are substantial. They fluctuate based on market conditions, but today are around 4%, which is nearly $16 million.

Even if Palm sells one million units between launch and December 31, will that be enough cash to fund $20 million in debt and interest for the next few years, in addition to all of their normal operating and marketing expenses? Not likely. Even if they pocket $50 of profit per device, it doesn't begin to cover the operating and debt costs of the company. They need to be selling millions of devices and quick. The end of the exclusivity agreement with Sprint will help in the US as Verizon and others sell the Pre. O2 will be launching the Pre in Europe soon as well.

Most of their revenue this year comes from the Treo and Centro products, but that revenue stream will dry up fairly soon and the Pre and other WebOS devices will need to pick up the slack and even exceed the sales of their predecessors.

The Pre is Palm's last and best hope. There will be no successor product if the WebOS platform cannot carry Palm for the next few years.

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