Phone
Since dropping below $1.50 in December, Sunnyvale, California-based Palm has risen as high as $16.80, spurred by the Jan. 8 debut of the Pre at the Consumer Electronics Show in Las Vegas. Palm, which reports results after markets close, may have sold about 400,000 Pre phones in the period ended Aug. 31, according to Ilya Grozovsky, an analyst at Morgan Joseph & Co.
“That would mean its not the blockbuster device everybody had hoped it would be,” said New York-based Grozovsky, who recommends selling the stock and expects the price to fall to $7.50, about half the closing price of $14.66 yesterday. “I would assume the Street would be disappointed.”
Apple Inc., located in Cupertino, California, sold 5.4 million iPhones in the calendar second quarter, and Waterloo, Ontario-based Research In Motion Ltd. sold 7.7 million BlackBerrys, according to researcher Gartner Inc. In June, Apple cut the price of its cheapest iPhone from $199 to $99.
Palms fiscal first-quarter results will also mark Jon Rubinsteins first period as chief executive officer. Rubinstein, a former Apple executive who got Palms top job in June, developed the WebOS operating system that runs the Pre.
Predicted Loss
Analysts on average predict Palm will report a loss, excluding some items, of $35 million, or 24 cents a share, widening from $12.8 million, or 12 cents, a year earlier. Revenue probably shrank 27 percent to $269 million in the period, according to a Bloomberg survey.
Palm Chief Financial Officer Doug Jeffries said last month that he expects the company to be cash flow positive by the second half of next year.
While the Pre re-established Palm as a competitor in the mobile-phone market, the stock has gained mostly because of anticipated demand for the Pre, said Lawrence Harris, an analyst at CL King & Associates in New York.
“Its up on expectations on the Pre, that the WebOS would be some revolutionary operating system and that demand would remain robust,” said Harris, who has a “neutral” rating on the shares. “Demand for smart phones is increasing, but were also seeing more and more players entering the market.”
Palm spokesman Derick Mains declined to comment. Palm fell 14 cents to $14.66 yesterday on the Nasdaq Stock Market.
Short Interest
The handset-makers short interest ratio, a measure of whether investors are betting the stock will fall, was 5.95 percent at the end of August, compared with 0.99 percent for Apple and 1.36 percent for Research In Motion, according to data compiled by Bloomberg.
The Pre allows users to surf the Internet on a touch screen, while using an actual keyboard to type e-mails. The Pre also lets users flip through applications without closing them and search for keywords across multiple programs.
Rubinstein, 53, joined Palm in 2007 after being courted by Elevation Partners, the private-equity firm co-founded by Roger McNamee. Elevation, based in Menlo Park, California, has invested $425 million in the company. Rubinstein, an engineer by training, built WebOS with a team of developers from companies including Apple, Nokia Oyj and Microsoft Corp.
“There are a lot of good engineers there,” said Ken Dulaney, an analyst at Gartner in San Jose, California. “The OS is pretty well done.”
Sprint Nextel Corp., the third-largest U.S. mobile-phone company, is distributing the Pre. Palm cut the price of the phone last week by $50 to $149.99 and at the same time announced the Pixi, a cheaper smart phone to be released later this year.