No sunny outlook for Palm
by Rachel Metz Associated Press Mar. 11, 2010 12:00 AM
SAN FRANCISCO - Last year, Palm thought it had all the pieces for a turnaround in the market it pioneered: a new CEO known for making the iPod a household name, a sleek new smartphone called the Pre and intuitive operating software.
Instead, the company is in danger of going the way of its 1990s Palm Pilot, making it the latest innovator to learn that great technology and an accomplished leader don't guarantee success.
Several analysts say Palm Inc. might not remain an independent phone maker for more than a year or two. It just could be too late to stop the momentum enjoyed by Apple Inc.'s iPhone and Research In Motion
Ltd.'s BlackBerry - not to mention a growing crop of phones running Google Inc.'s Android software.
Palm spokesman Derick Mains said the company had no comment.
Consumers have gravitated toward smartphones for their versatile features, such as Internet access and applications that can be downloaded. One out of six U.S. adults had a smartphone last year, according to Forrester Research.
But Palm was slow to adapt. It began fighting back in earnest in January 2009 at the International Consumer Electronics Show. It unveiled the stylish touch-screen Pre and webOS, software that allows Palm phones to do something the iPhone can't: run multiple apps simultaneously.
Palm released the Pre last June, for use on Sprint Nextel Corp.'s wireless network, and followed it in November with a cheaper model, the Pixi. Verizon Wireless started selling upgraded models of these phones in January, and AT&T Inc. plans to offer webOS phones later this year.
Despite widespread availability and positive reviews, consumers haven't really embraced the products. Palm sold 810,000 phones in the quarter that ended Aug. 28. In the next quarter, sales fell to 573,000. And Palm's latest report, due March 18, is not expected to be bright. Palm recently cut its forecast for that period, citing sluggish sales.
Discouraged investors have sliced the company's stock price by more than half since the Pre hit stores.
One big problem for Palm is standing out in a crowded market dominated by Apple and RIM. Many analysts believe Palm's latest products are good, but the company simply hasn't been able to make potential customers realize this.
Not for a lack of trying: Palm spent $74.1 million on sales and marketing in its last reported quarter, up 64 percent from the previous year.
Right before the Pre launch, CEO EdColligan was replaced by Jon Rubinstein, 53, who spent a decade at Apple during its own comeback run.
He came to Palm in 2007 as executive chairman under a deal in which Palm sold nearly a third of the company to private equity firm Elevation Partners.
Still, even the most astute leadership isn't enough in such a competitive market, Canaccord Adams analyst Peter Misek said.
"It takes distribution, it takes cash, it takes luck. It takes a lot of things, and if all those things don't click, your probability of success is low," he said.
