Where does Palm go from here?

Weak sales of its smartphones raise questions about Palm's future, possible sale

Smartphone industry pundits wonder whether Palm Inc. can survive another year, given the company's report today that its new smartphone sales failed to meet expectations.

Palm said that its revenues for the year will be "well below" a previous forecast, because adoption of its Palm webOS smartphones -- the Palm Pre and the Pixi, first announced in early 2009 -- is taking longer than anticipated.

The news caused Palm's stock price to plunge 17% initially, and some are questioning whether Palm can survive in its current form beyond the 2010 year-end holiday shopping season.

Five analysts suggested that several things could happen to Palm by year's end: It could be bought; it could go private; it could raise more funds from Elevation Partners, an investment firm that has infused more than $400 million in Palm since 2007; and, finally, it could focus heavily on expanding the number of carriers selling its smartphones, especially abroad.

The possibility of Palm being sold to another company has been raised many times in recent years, but one analyst today questioned why anyone would buy it.

"The best candidates to buy Palm might be a Chinese or Japanese company wanting to get in the smartphone market, but realistically what would they buy?" asked Jack Gold, principal analyst at J.Gold Associates. "The odds that Palm can last another year are no better than 50-50 right now, unless they build momentum and make money."

Because potential buyers of Palm aren't evident, Gold said it's even possible that Palm "could just fold up and go away if they run out of cash."

Ken Dulaney, an analyst at Gartner Inc., said Palm "needs to be acquired" and suggested that BlackBerry maker Research In Motion Ltd. would benefit from buying Palm and its talented engineers.

Dulaney refused to speculate on Palm's fate one year from now, but Gartner researchers have projected that the company's smartphones will have only 1.4% of the smartphone market in 2012, and Dulaney said that level of market penetration represents a "very difficult survival strategy."

In the past year, Palm has been up against tough competitors, including Apple, Google, Motorola, Samsung and Nokia, that are "monsters in a tough, tough smartphone market," Dulaney said. Nonetheless, Palm is "a Silicon Valley icon," he added, "and I don't want to see them go."

On the other hand, Will Stofega, an analyst at IDC, predicted Palm will certainly be around in a year, since the company has a great mobile operating system but has not had the help from carrier partners that it needs. He suggested Palm could go private, and could certainly start aggressively marketing its products abroad, partnering with carriers from other countries.

Kevin Burden, an analyst at ABI, said Palm has "very solid devices and a well-done OS, but their problem is lacking scale" in a market featuring enormous competitors. "Could they ride this trouble out with a lot more wireless operators? Yes, but there's already so much competition from iPhone, Android and even Windows Phone 7 coming," Burden said. "They don't have the scale to compete today, and the big guys are getting bigger."

Expanding carrier relationships might be key to Palm, at least for the next few months, all the analysts said.

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