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

Posted:
in iPhone edited January 2014
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.
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Comments

  • Reply 1 of 47
    aplnubaplnub Posts: 2,584member
    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.
  • Reply 2 of 47
    roos24roos24 Posts: 170member
    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.
  • Reply 3 of 47
    bageljoeybageljoey Posts: 1,752member
    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...
  • Reply 4 of 47
    dr millmossdr millmoss Posts: 5,403member
    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.
  • Reply 5 of 47
    chronsterchronster Posts: 1,894member
    Quote:
    Originally Posted by Roos24 View Post


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



    Why's that?
  • Reply 6 of 47
    anantksundaramanantksundaram Posts: 19,050member
    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).
  • Reply 7 of 47
    olternautolternaut Posts: 1,376member
    Quote:
    Originally Posted by Roos24 View Post


    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.
  • Reply 8 of 47
    teckstudteckstud Posts: 6,476member
    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.
  • Reply 9 of 47
    fraklincfraklinc Posts: 244member
    Good news for Palm, no so good for Sprint.
  • Reply 10 of 47
    teckstudteckstud Posts: 6,476member
    Quote:
    Originally Posted by fraklinc View Post


    Good news for Palm, no so good for Sprint.



    Add to that Verizon for the good.
  • Reply 11 of 47
    gtl215gtl215 Posts: 242member
    Quote:
    Originally Posted by teckstud View Post


    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.
  • Reply 12 of 47
    teckstudteckstud Posts: 6,476member
    Quote:
    Originally Posted by aplnub View Post


    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.
  • Reply 13 of 47
    teckstudteckstud Posts: 6,476member
    Quote:
    Originally Posted by GTL215 View Post


    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?
  • Reply 14 of 47
    aaarrrggghaaarrrgggh Posts: 1,572member
    Quote:
    Originally Posted by anantksundaram View Post


    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.
  • Reply 15 of 47
    anantksundaramanantksundaram Posts: 19,050member
    Quote:
    Originally Posted by aaarrrgggh View Post


    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!
  • Reply 16 of 47
    samabsamab Posts: 1,953member
    Quote:
    Originally Posted by aplnub View Post


    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.
  • Reply 17 of 47
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by anantksundaram View Post


    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.



    Quote:
    Originally Posted by aaarrrgggh View Post


    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?







    Quote:
    Originally Posted by teckstud View Post


    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.



    Quote:
    Originally Posted by teckstud View Post


    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.
  • Reply 18 of 47
    anantksundaramanantksundaram Posts: 19,050member
    Quote:
    Originally Posted by aaarrrgggh View Post


    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?
  • Reply 19 of 47
    bloggerblogbloggerblog Posts: 1,820member
    If this thing supports tethering and SlingBox without any additional fees, I might switch.

    AT&T is too sneaky for my taste.
  • Reply 20 of 47
    jackncjacknc Posts: 6member
    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.
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