Palm stock surges on rumors of Pre heading to Verizon in 2010

[AppleInsider]

Shares of Palm, Inc spiked upward roughly ten percent on rumors that the new Palm Pre phone might only remain exclusively tied to Sprint for six months, suggesting availability through Verizon Wireless and AT&T as early as January 2010.

The stock jump indicates good news and bad for Palm. It means that investors are hopeful that the new phone might get a wider audience sooner than expected, but also exposes fear that Palm's exclusive deal with Sprint is a significant negative for the Pre, and may have a blunting impact on its initial launch.

The suggestion that Verizon and AT&T would eventually ship the Palm Pre or other WebOS-based phones from Palm is nothing new; representatives of both companies have referenced plans to carry new Palm devices, just as both already carry Palm Treos.

Palm desperately needs to gain traction for its new WebOS-based Pre following years of disintegration of the company's legacy Palm OS platform as the company waffled between various strategies and failed to deliver regular technology updates, allowing rivals to catch up and surpass the company's pioneering Palm Treo smartphone.

In many ways, Palm's performance earlier this decade mirrored Apple's nearly lethal problems of the early 90s. Both companies once defined their respective markets, with Apple's Macintosh and Palm's Treo devices leading the industry by several years following their initial launches.

Both companies then lost their lead to rivals, in large part due to their failure to keep pace with new technologies and other competitive pressures. However, the rebound strategies of both companies ended up being entirely different, despite remarkably similar problems and options available.

Nearly on its deathbed, Apple rejected offers from Microsoft to adopt Windows NT in 1996 and instead acquired NeXT for an infusion of new technology and marketing strategy and began a new renaissance of technology development that capitalized on the company's tight integration of hardware and software.

Palm similarly absorbed a spinoff company created by the company's founders when it acquired Handspring, just as the company began to fall into trouble. Palm then proceeded to take all of the ignored advice that pundits had offered the ailing Apple; the company bought Be, Inc., licensed Windows Mobile from Microsoft, split its hardware and software operations into two separate companies, started toying with Linux, and tried to aggressively move into the enterprise arena while also attempting to delivering ultra cheap models for consumers. It even tried to deliver a netbook device before abandoning the project as impractical.

When Apple unveiled the iPhone in 2007 in a direct blow to the Treo, Palm appeared to be marked for death. The company was desperately trying to figure out how to stitch its hardware and software operations back together and had wasted too much time trying to drag ahead its legacy old versions of the Palm OS, to market newer versions rejected by developers, to incorporate Linux and BeOS technologies into its plans, and to decide what to do with the Windows Mobile versions of its phones that were confusing customers.



When Palm unveiled the new Pre in January 2009, commentators hailed the new product concept as a potential savior for the company. However, Palm is now in the underdog position of taking on the third generation of the wildly successful iPhone.

Apple's current models are not only selling worldwide but are also exclusive to AT&T in the US, a deal Apple brokered to obtain major concessions on how its new phone would be sold. That included media and software rights for Apple that enabled the company to deliver an outstanding software platform that has drawn record attention from developers and users as the first successful mobile software market.

Palm's deal with Sprint, the third largest mobile provider in the US, is a concession on Palm's end and a desperate measure for Sprint, which has seen its customers flocking to Verizon and AT&T. It also limits the Palm Pre's international launch potential, as Sprint's CDMA2000 mobile network technology is not widely available outside the US.



Customers who are set on buying the Pre no matter what will either need to switch to Sprint or wait another six months without being tempted by the new flock of iPhones Apple is expected to deliver just shortly after the Pre's launch date. It also means Verizon customers interested in a popular new phone will have to sit tight for months or make due with the increasingly dated LG or RIM phones Verizon is trying to give away for free or the problematic BlackBerry Bold, which has failed to take off in its bid to stand as a substantial competitor to the iPhone.

New Windows Mobile and Android phones have also hit delays that leave new product introductions slated for later this year or early 2010, meaning that the Palm Pre may hit the wider market just in time to get lost in a swarm of new product introductions well after the launch of Apple's 2009 iPhones. Even so, any news on the Pre will likely be seen as good news for Palm investors after year of hopelessness.

[ View this article at AppleInsider.com ]

[aplnub]

Maybe Apple can one day explain why they have decided to stick with AT&T when they could reach nearly every cell phone user in the US by adding Verizon. I can understand the first year, and possibly the second year if they had to sign up for two years. Starting on year three, I don't get it.

[Roos24]

Great! This is a dream scenario! Palm Pre and BB Storm doing battle, go ahead, kill each other! I have always thought that the Pre should be compared with the Storm, not with the iPhone.

This is going to be fun.

[Bageljoey]

I was wondering what was behind Palm's surge today. If this is true, it is good news indeed for them.

The carrier issue doesn't matter to me personally, as I am on at&t already and plan to get an iPhone this time around.

But as an investor, it certainly looks like Apple would have done better to keep exclusivity with at&t to a shorter term (maybe giving up some profitable kickbacks from the carrier) in order to saturate the market with iPhones through other vendors. I am wondering if Apple didn't believe their own hype--"we are years ahead of the other phone manufacturers!" Sure. In 2007. But now they know where the puck is going too and they are catching up fast! Did Apple think that they would have no real competition until G4 was widely available?

We won't know if the Pre is a worthy competitor until it is out in the wild, but...

[Dr Millmoss]

Interesting comments about the struggles at Palm. it's worth noting that Palm attempted the same impossible, suicidal feat that so many have wished on Apple. You can't compete with yourself and win. This should be obvious, but I guess it isn't to everyone. Palm is Exhibit A.

[chronster]

Originally Posted by Roos24

I have always thought that the Pre should be compared with the Storm, not with the iPhone.

Why's that?

[anantksundaram]

At today's close of about $11.50 per share, PALM has a market cap of ~$1.58B.

Some quick-and-dirty math is perhaps interesting to contemplate: Suppose the Pre is all they sell. Suppose they sell each Pre handset for $350 (e.g., $200 + carrier subsidy + other revenues, such as those from monthly subscriptions, app store, etc) and have a 30% EBIT margin (somewhat lower than Apple's across-the-board average), i.e., per-handset EBIT = $105.

At a P/EBIT = 15, which is lower than Apple's, a million handsets sold in Year 1 will imply $105M in EBIT, or a market value of 105*15 = $1.58B.

Hmmm..... will they sell 1 million at $350 per handset? If opening up to Verizon, ATT, other countries, etc increases that expected number, so will the market cap. (It certainly seems like, at $1.50, which was not too long ago, PALM was a good buy!).

(This analysis is not meant to be taken too seriously! I am sure it must have mistakes in it that I am not seeing. I hope no one is foolish enough to make any trading decisions based on this. I am just throwing out some illustrative and speculative numbers to get a discussion going, that's all).

[Olternaut]

Originally Posted by Roos24

Great! This is a dream scenario! Palm Pre and BB Storm doing battle, go ahead, kill each other! I have always thought that the Pre should be compared with the Storm, not with the iPhone.

This is going to be fun.

Yeah I'm with Chronster.....why is that? The BB Storm has nothing on the Palm Pre and its WebOS. The Pre actually surpasses the iphone in a few areas......although its also behind in other areas.

The BB Storm though is truly the classic iphone clone....and a bad one at that.

[teckstud]

This rumor has been known for months as I've posted it over and over. Good for us Verizon customers. I was actuially thinking of switching to the iPhoneCompass next month. Now I have more options for techy toys and have to rethink everything. Of course the reviews are the key- and not just the device but the carriers signal as well.

[fraklinc]

Good news for Palm, no so good for Sprint.

[teckstud]

Originally Posted by fraklinc

Good news for Palm, no so good for Sprint.

Add to that Verizon for the good.

[GTL215]

Originally Posted by teckstud

Of course the reviews are the key- and not just the device but the carriers signal as well.

unfortunately the BGR initial review is somewhat lukewarm. They got their hands on one last night.

[teckstud]

Originally Posted by aplnub

Maybe Apple can one day explain why they have decided to stick with AT&T when they could reach nearly every cell phone user in the US by adding Verizon. I can understand the first year, and possibly the second year if they had to sign up for two years. Starting on year three, I don't get it.

Right-there is no excuse for not having a CDMA version no matter how crippled. Or even a different phone alltogether. People and corporations simply will not switch their carriers no matter how great the device is. The cellphone market is extremely fickle with new products arriving monthly. This will be an extremely interesting year for smartphone competition.
Perhaps we can go back to computer desktops and laptops again as the main focus of our daily discussions.

[teckstud]

Originally Posted by GTL215

unfortunately the BGR initial review is somewhat lukewarm. They got their hands on one last night.

Fortunately no one but you would take that as a credible source for a review.
However, why am I not suprised that any site with the word "boy" would appeal as your prime source of legitimate journalism?

[aaarrrgggh]

Originally Posted by anantksundaram

At today's close of about $11.50 per share, PALM has a market cap of ~$1.58B.

Some quick-and-dirty math is perhaps interesting to contemplate: Suppose the Pre is all they sell. Suppose they sell each Pre handset for $350 (e.g., $200 + carrier subsidy + other revenues, such as those from monthly subscriptions, app store, etc) and have a 30% EBIT margin (somewhat lower than Apple's across-the-board average), i.e., per-handset EBIT = $105.

At a P/EBIT = 15, which is lower than Apple's, a million handsets sold in Year 1 will imply $105M in EBIT, or a market value of 105*15 = $1.58B.

Hmmm..... will they sell 1 million at $350 per handset? If opening up to Verizon, ATT, other countries, etc increases that expected number, so will the market cap. (It certainly seems like, at $1.50, which was not too long ago, PALM was a good buy!).

I'd argue that they are making closer to $150-200 per handset, but that is where the optimism stops. You are forgetting operating costs. Operations are about $800MM/year at last quarter's burn rate. That would have them at a $4.37 loss per year over the next 12 months. They need to sell 4MM phones at the high range on profit to break even.

Making matters worse, their brand is lost. They could have the best phone in the world, but it is going to take one hell of a lot of promotion to re-build that brand.

I wish them luck; I hope it is a great phone and might buy one myself at some point. But they have to sell ~3-400k phones in the first month to gain the kind of inertia they need to survive. After that, there are just going to be too many competitors to get enough traction for sustained growth.

[anantksundaram]

Originally Posted by aaarrrgggh

You are forgetting operating costs. ....

No, I am not forgetting operating costs. That's why I am looking at the EBIT (= "Operating Margin"), and applying my multiple to the EBIT. And, that's why I also prefaced it by saying "assuming they only sell the Pre."

Revenue is another matter, though.... you may well be right and it's around $200 rather than $350 per handset. I think it's probably higher than $200, but I don't have any real basis for saying that except using Apple's rumored number vis-a-vis ATT.

PS: My main point, though, was $1.50 was not a bad price!

[samab]

Originally Posted by aplnub

Maybe Apple can one day explain why they have decided to stick with AT&T when they could reach nearly every cell phone user in the US by adding Verizon. I can understand the first year, and possibly the second year if they had to sign up for two years. Starting on year three, I don't get it.

I know that there are going to be a lot of "if's" in my theory, but here it goes:

If Apple wasn't too greedy in the first place, they could have wiped Palm out of existence right now.

If Apple signed with Verizon in the first place --- we would have seen both CDMA and GSM in the first gen iphone (GSM for the European/international market), we would have seen a subsidized price instead of the orginial $600 price tag, we would have seen a normal carrier relationship instead of trying the revenue sharing route (which in turn would have not scared away potential carrier partners), we would have seen 70 country launch for the first gen iphone (instead of 4 carriers).

If Apple had done all that --- Palm wouldn't have survived as a company right now.

[solipsism]

Originally Posted by anantksundaram

Suppose the Pre is all they sell. Suppose they sell each Pre handset for $350 (e.g., $200 + carrier subsidy + other revenues, such as those from monthly subscriptions, app store, etc) and have a 30% EBIT margin (somewhat lower than Apple's across-the-board average), i.e., per-handset EBIT = $105.

Originally Posted by aaarrrgggh

I'd argue that they are making closer to $150-200 per handset, but that is where the optimism stops.

There is one Best Buy flyer that lists the out-of-contract price of the Palm Pre as $849.99. The Pre, like the iPhone, also requires the data plan to be attached for a minimum monthly fee of $69.99. From those I deduce that Sprint is Palm considerably more then the typical handset exclusivity subsidy, and that it’s probably more inline with the whole cost of the iPhone, perhaps even more. If so, that supports both your points even more, but will even a huge acceptance rate be enough to move Palm into a secure future in the smart/mediaphone market?

Originally Posted by teckstud

This rumor has been known for months as I've posted it over and over. Good for us Verizon customers. I was actuially thinking of switching to the iPhoneCompass next month. Now I have more options for techy toys and have to rethink everything. Of course the reviews are the key- and not just the device but the carriers signal as well.

Originally Posted by teckstud

Right-there is no excuse for not having a CDMA version no matter how crippled. Or even a different phone alltogether. People and corporations simply will not switch their carriers no matter how great the device is. The cellphone market is extremely fickle with new products arriving monthly. This will be an extremely interesting year for smartphone competition.
Perhaps we can go back to computer desktops and laptops again as the main focus of our daily discussions.

The first post of yours I quoted is very well balanced, but then you muck it up with this excuses nonsense, again. For Cameronj’s sake. I’m not going to rehash the logical fallacy of the CDMA iPhone in the US while it’s still exclusive in most other countries that are GSM or the iPhone ecosystem benefit.

[anantksundaram]

Originally Posted by aaarrrgggh

I'd argue that they are making closer to $150-200 per handset, but that is where the optimism stops. .....

Wait a second: I think I may have misinterpreted what you said here; when you say "making....." do you mean margins or revenues? If the former, my point is even stronger, no?

[bloggerblog]

If this thing supports tethering and SlingBox without any additional fees, I might switch.
AT&T is too sneaky for my taste.

[JackNC]

Whether this is true or just a rumor, I think it is bad news for both Palm and Sprint that this got out. Whereas both companies were probably hoping for switchers from Verizon or ATT and a big burst of sales, now most customers of those other carriers will probably figure they'll just wait 6 months until their own companies to carry the phone. From what is being said about Palm's financial situation, they probably can't wait that long to sell large numbers of the phone.

[anantksundaram]

Originally Posted by JackNC

Whether this is true or just a rumor, I think it is bad news for both Palm and Sprint that this got out. Whereas both companies were probably hoping for switchers from Verizon or ATT and a big burst of sales, now most customers of those other carriers will probably figure they'll just wait 6 months until their own companies to carry the phone. From what is being said about Palm's financial situation, they probably can't wait that long to sell large numbers of the phone.

No, it's not necessarily bad news. Sprint has nearly 50M subscribers. They'll probably find more than a sufficient number to switch from within their base (or by preventing defection). Also, one can't rule out that a company such as Sprint may provide some sort of implicit financing (e.g., through extra subsidies) for Palm, depending on how it pans out.

[nikon133]

Originally Posted by JackNC

Whether this is true or just a rumor, I think it is bad news for both Palm and Sprint that this got out. Whereas both companies were probably hoping for switchers from Verizon or ATT and a big burst of sales, now most customers of those other carriers will probably figure they'll just wait 6 months until their own companies to carry the phone. From what is being said about Palm's financial situation, they probably can't wait that long to sell large numbers of the phone.

Unless Verizon and ATT are helping you through.

[lightstriker]

Originally Posted by samab

I know that there are going to be a lot of "if's" in my theory, but here it goes:

If Apple signed with Verizon in the first place

where have you been for the last 2 years? That's not a theory. Apple did make an offer to Verizon and was rejected. Now Verizon is kicking itself in the ass and paying shill bloggers to suggest that there is a Verizon iPhone soon to stop the flow of switchers.

[SpamSandwich]

Ahhh, poor little Palm. They won't even know what hit 'em.

[mark2005]

Originally Posted by samab

I know that there are going to be a lot of "if's" in my theory, but here it goes:

If Apple wasn't too greedy in the first place, they could have wiped Palm out of existence right now.

If Apple signed with Verizon in the first place --- we would have seen both CDMA and GSM in the first gen iphone (GSM for the European/international market), we would have seen a subsidized price instead of the orginial $600 price tag, we would have seen a normal carrier relationship instead of trying the revenue sharing route (which in turn would have not scared away potential carrier partners), we would have seen 70 country launch for the first gen iphone (instead of 4 carriers).

samab has written this before and it's been hashed over before.

If Apple had signed with Verizon on Verizon's terms, the iPhone would've been a dud, and there would've been no real smartphone revolution. To counter samab's extreme case, here's the Verizon circa 2007 extreme - no wi-fi, no iTunes store access, no at-home activation via iTunes, no direct Apple iPhone updates, no iPod touch allowed, and a big Verizon logo on the iPhone.

Apple has really paid the price by not insisting that Steve Jobs, the greedy CEO, consult with samab, the know-it-all genius.

[samab]

Originally Posted by mark2005

samab has written this before and it's been hashed over before.

If Apple had signed with Verizon on Verizon's terms, the iPhone would've been a dud, and there would've been no real smartphone revolution. To counter samab's extreme case, here's the Verizon circa 2007 extreme - no wi-fi, no iTunes store access, no at-home activation via iTunes, no direct Apple iPhone updates, no iPod touch allowed, and a big Verizon logo on the iPhone.

Apple has really paid the price by not insisting that Steve Jobs, the greedy CEO, consult with samab, the know-it-all genius.

Nobody really knows what Verizon demanded from Apple --- so we can't go with conspiracy theories about how Verizon would have crippled the iphone if they signed the deal with Apple. And I am restricting my theory to the first gen iphone only, so the iphone apps on the itunes store isn't on the agenda and there were no killer iphone updates on the first gen iphone.

What I am talking about is really the basic stuff that we already know:

1) Verizon disagreed on limited distribution (ie. Apple store and AT&T corporate store only) --- which angered AT&T's agent stores and other distribution partners (like RadioShack and BestBuy).
2) if there were wider distribution, we wouldn't have home activation problems in the first place.
3) Many items in the first gen iphone agreement was quickly reversed --- stuff like the original $600 price tag, revenue sharing, limited distribution (quickly open to Bestbuy and Walmart), handset warranty handling (many iphone carriers handle iphone warranty elsewhere).
4) Apple wanted too much from other carriers around the world because AT&T agreed on revenue sharing --- hurt the first gen iphone when negotiations took forever and limited to 3 European countries.

Even if the Verizon iphone would have been a complete dud --- Apple would have signed far more international carriers because Apple wouldn't have insisted on stuff that never would have worked in the first place (full priced $600 iphone with a 2 year contract with revenue sharing) --- Apple would have sold far more than the 7 million first gen iphones worldwide.

Palm was in really bad shape 2-3 years ago --- it wouldn't have taken much to push them over the edge. Hell, if Apple sold 3 million more first gen iphones and Palm sold 3 million less smartphones 2 years ago --- we might have already seen Palm's demise. Would Apple make less money with Verizon on the first gen iphone? Most likely --- but as the VISA commercial said it best: wiping out a competitor like Palm is priceless.

[samab]

Originally Posted by lightstriker

where have you been for the last 2 years? That's not a theory. Apple did make an offer to Verizon and was rejected. Now Verizon is kicking itself in the ass and paying shill bloggers to suggest that there is a Verizon iPhone soon to stop the flow of switchers.

Except reality doesn't match with your theory.

If you take cheap prepaid Tracfone out of the equation --- AT&T had NEVER beaten Verizon in net subscriber additons since the iphone was launched. Why would Verizon need to stop the flow of switchers when Verizon is beating AT&T in every single quarter in net subscriber adds?

[aaarrrgggh]

Originally Posted by anantksundaram

Wait a second: I think I may have misinterpreted what you said here; when you say "making....." do you mean margins or revenues? If the former, my point is even stronger, no?

I think margin per phone is better than you stated, but gross margin excludes operational and marketing costs. They need to sell a lot of phones to break even when you consider fixed costs rather than incremental profit per device.

Even with Verizon and At&t getting it six months later, they seem to be missing key ingredients for a rebound. I think they will be constrained on addressable audience, production, and competition. When are Instinct customers eligible for a phone upgrade? Would they buy it?

From a stock perspective, I just think PALM is over-rated now.

[shadow]

I lost track of all those threads praising the Pre's physical keyboard. I pointed out several advantages of the software keyboard against the phone-sized physical keyboard in several posts. And here is the first review:

Palm Pre first hands-on.

The Pre feels really good in your hand in terms of size and shape, but there’s a real plasticky aura about it. Additionally, things aren’t looking good for that QWERTY either. And hey, you know we take them keyboards seriously! When you try and type on the top row of keys, your finger hits the bottom part of the front piece and on top of that, you often hit multiple keys at the same time while typing. It’s actually really frustrating and doesn’t bode well for such a fantastic social communication/personal/business tool.

[Roos24]

Originally Posted by chronster

Why's that?

Your remark is legitimate. I should have said Blackberry, except the Storm, for their physical keyboard. I apologize for not being clear.

JR

[anantksundaram]

Originally Posted by aaarrrgggh

I think margin per phone is better than you stated, but gross margin excludes operational and marketing costs. They need to sell a lot of phones to break even when you consider fixed costs rather than incremental profit per device.

Even with Verizon and At&t getting it six months later, they seem to be missing key ingredients for a rebound. I think they will be constrained on addressable audience, production, and competition. When are Instinct customers eligible for a phone upgrade? Would they buy it?

From a stock perspective, I just think PALM is over-rated now.

If you don't see the difference between gross margin (Revenues - CGS, which you are referring to) and operating - i.e., EBIT - margin (which is what I've been talking about from the outset), I am not sure it is a great idea to be making statements such as a stock being "...over-rated."

[tekneeq53]

Originally Posted by teckstud

Right-there is no excuse for not having a CDMA version no matter how crippled. Or even a different phone alltogether. People and corporations simply will not switch their carriers no matter how great the device is. The cellphone market is extremely fickle with new products arriving monthly. This will be an extremely interesting year for smartphone competition.
Perhaps we can go back to computer desktops and laptops again as the main focus of our daily discussions.

I work for at&t and have seen numerous consumers, and business customers switching from other carriers to at&t specifically for the iphone. Now all the people i have talked to will say that they switched for the iphone and then they will complain about their previous service. I have respect for every mobile carrier however sprint-nextel is falling apart. The palm pre looks like a great device, but what is the point of having a great device if your cellular network is not very expansive? Wouldnt it be fair to say that having a small network would impact the functionality of the device?

Will apple partner up with verizon? probably later on down the road. Verizon needs to build up their international network however. I agree with techstud that the mobile world does get numerous phones in every month. However when dubbed the "Iphone killer" the company who made the device better come out strong because look what had happened to the other supposed "iphone killer" the blackberry storm, the blackberry storm was rated the worst gadget by engadget magazine.

[samab]

Originally Posted by tekneeq53

However when dubbed the "Iphone killer" the company who made the device better come out strong because look what had happened to the other supposed "iphone killer" the blackberry storm, the blackberry storm was rated the worst gadget by engadget magazine.

Doesn't matter, isn't it?

The curve outsold the iphone and the storm took the 3rd spot after the 2nd place iphone.

[AjitMD]

The Pre may not be as refined as the iPod and does have the apps. The iPod has indeed stimulated the public's interest - and demand - in smart phones. However, the iPhone is restricted to ATT. Customers with Sprint may not want to switch to ATT due to cost, family and corporate (few) plans... VZ customers are even more sticky. In other words, the market that the Pre can address is significant. I have a smart phone with Sprint and they made me sign initially with their data plan but I cancelled it with no penalty... just said the reception was poor. I expect Sprint to be flexible with their data plans.

Equally important is the overseas market where the iPhone is restricted or sold as a premium product. At the very least they got a CDMA product... that is 20% of the market that Apple does not touch.

Most of the music people have is downloaded from their PCs to the smart phones... so access to iTunes is not essential for music. However, the drag will be no apps at this time. Aside from the iPhone the competition for the this phone is not impressive from Samsung, etc. The RIMM products are mostly for mail, etc... though there is consumer use.

With market cap of $1.5 B the stock makes of long shot side bet... I was not smart enough to have bought at $1.5/s, but made a small bet today. Any kind of success and this market cap could make multiples.

[aaarrrgggh]

Originally Posted by anantksundaram

If you don't see the difference between gross margin (Revenues - CGS, which you are referring to) and operating - i.e., EBIT - margin (which is what I've been talking about from the outset), I am not sure it is a great idea to be making statements such as a stock being "...over-rated."

I guess I am confused by why you would use operating margin as metric for an unprofitable company; traditionally you would take gross margin for a product, which can generally be divined based on similar products and company history. For Palm, that is ~20%. Then, you take the total operating costs related to the business (as you say, excluding interest and taxes). Operating costs are generally fixed relative to sales volume, but there is some variability especially in the areas of technical support and sales/logistics.

My math is pretty straightforward: $800 wholesale price * 20% margin (gross) = $160. You could guess that their margin might be higher, or that the wholesale price is higher to get up to $200 gross profit per device.

$880MM in annual operating costs (TTM was 980MM, but it looks like they have reduced general overhead and R&D somewhat) means you need to sell around 4-5.5MM devices to break even, assuming no other sources of revenue. That doesn't give you any EBIT, just breaking even.

If you want to give them a $1.5B market cap and a 30 P/E, they need to sell an additional 300k devices per year as a one-trick pony. Or, they can scale back operating costs to (say) $400MM/year. At that point, they can justify their valuation at about 3MM devices.

I just don't see it happening. I don't see them having the production or logistics wherewithal, or the rabid fan base, to get them out the door in their first quarter with 1MM devices. Apple didn't even have the ability to do it in their first quarter with the iPhone and a better distribution network and wireless partner.

As for my stock portfolio... I'm pretty happy where I am at. YTD I am up around 95% compared to AAPL at 60% and the NASDAQ at 11%. Over the last two years, I am still up over 15% despite making a couple significant mistakes early last year. I looked at buying Palm back at $8, but I didn't like them then and still don't now.

I did get one thing wrong; I accidentally included the cost of goods sold twice, but it doesn't change my assessment at all. They need to sell more devices than they can in their first year to be attractive.

[JeffDM]

Originally Posted by lightstriker

where have you been for the last 2 years? That's not a theory. Apple did make an offer to Verizon and was rejected. Now Verizon is kicking itself in the ass and paying shill bloggers to suggest that there is a Verizon iPhone soon to stop the flow of switchers.

Regarding the section I set in bold, do you have anything real to base this on? It may well be, but I'd like to know if you're just assuming this and presenting it as a fact, or if there is a real story behind it.

[jacobmx]

Originally Posted by AjitMD

The Pre may not be as refined as the iPod and does have the apps. The iPod has indeed stimulated the public's interest - and demand - in smart phones. However, the iPhone is restricted to ATT. Customers with Sprint may not want to switch to ATT due to cost, family and corporate (few) plans... VZ customers are even more sticky. In other words, the market that the Pre can address is significant. I have a smart phone with Sprint and they made me sign initially with their data plan but I cancelled it with no penalty... just said the reception was poor. I expect Sprint to be flexible with their data plans.

Equally important is the overseas market where the iPhone is restricted or sold as a premium product. At the very least they got a CDMA product... that is 20% of the market that Apple does not touch.

Most of the music people have is downloaded from their PCs to the smart phones... so access to iTunes is not essential for music. However, the drag will be no apps at this time. Aside from the iPhone the competition for the this phone is not impressive from Samsung, etc. The RIMM products are mostly for mail, etc... though there is consumer use.

With market cap of $1.5 B the stock makes of long shot side bet... I was not smart enough to have bought at $1.5/s, but made a small bet today. Any kind of success and this market cap could make multiples.

There is no reason for you to have a smart phone if you don't have a data plan. You may as well have a $10 low end phone.

www.jacobwhitaker.com

[solipsism]

Originally Posted by jacobmx

There is no reason for you to have a smart phone if you don't have a data plan. You may as well have a $10 low end phone.

You are not thinking it through. There are plenty of people that can utilize the iPhone without having a data plan. First of all, many people aren’t so much into constant internet access but simply want to tie their iPod with their cell phone. Then there are people that have WiFi in areas they frequent the most, like their home and work, which gives them internet access without paying a fee.

There is no argument that cell phones, especially ones that require unlimited data plans, are expensive and this is a deterrent for many, but there is a reason for this requirement as it allows carriers to subsidize the price of the handset more than they could if only voice was required. Personally, I’d rather pay my $700 up front and have a lower monthly plan, but it seems that most people don’t agree with that or subsidization wouldn’t be so common.

[JeffDM]

Originally Posted by solipsism

You are not thinking it through. There are plenty of people that can utilize the iPhone without having a data plan. First of all, many people aren’t so much into constant internet access but simply want to tie their iPod with their cell phone. Then there are people that have WiFi in areas they frequent the most, like their home and work, which gives them internet access without paying a fee.

Then there are those that would like a big screen phone. The screens on the cheap phones are pretty small. Having access to an easy way to keep your contact list up to date with the computer is good too, one of my old phones required $120 in software and cables to do that, the other had Bluetooth but was cumbersome on Windows, it wouldn't sync with a mac at all.

There is no argument that cell phones, especially ones that require unlimited data plans, are expensive and this is a deterrent for many, but there is a reason for this requirement as it allows carriers to subsidize the price of the handset more than they could if only voice was required. Personally, I’d rather pay my $700 up front and have a lower monthly up front and have a lower monthly play, but it seems that most people don’t agree with that or subsidization wouldn’t be so common.

Having an option to going without the data plan would reduce long term costs.

I also don't know if any carrier even lets you have a lower rate in exchange for buying the unsubsidized phone. That's not even an option that I'm aware of, you can't trade recurring costs for up front costs for the same service.