Thoughts on the Palm Financial Results Call

by Reads (5,360)

Note: these are my observations as I noted them during the call. Many things written are suppositions, thoughts, and theories of where Palm is and where they will be going. Where I can, I will pull from the press release the points that I am speaking about so as to keep from some (inevitable) confusion.

Yesterday, Palm reported on Q1 Fiscal Year 2007 results, and while you can read all over the Internet on how below-expectations Palm did from a numbers standpoint, because of our readership, I took some notable points from the conference call that were both nice to hear (new models), and at the same time brings to light what happens to companies who don’t move fast enough in the mobile computing industry.

– Palm will be using a lower cost Chinese ODM (original device manufacturer) for a future low-cost Treo.

While this will be great in terms of making Palm’s bottom line better (slow sales hurt them – more on that in a bit). Many companies who were running with HTC have felt the boot and Palm could be one of them, though the relationship is so old so that would be surprising. Even so, I wonder if there was a purchase of the Treo design from HTC, and then Palm turned around and licensed the design to another ODM to produce and manufacture it at a lower cost.

– Five additional regions for the new (to come) Treo

Again this was great news, but then I noticed an early trend in the call by Palm to make it clear that the focus is worldwide effect, not just US and then the world. My guess on the regions (in possible order of release) are EU, N. America, SE Asia, Australia, and then S. America. One of the big weights on the stock price recently has been a view form analysts that Palm was losing touch with global markets. There was definitely a long lull between the Treo 650 and the Treo 750v, but it’s abundantly clear now that the 750v is just the start in Palm’s renewed focus on international markets.

– The 700wx will see a release on the other world CDMA carriers

The W broke a ton of new ground, but the WX is more refined and better overall offering. Palm must have been waiting for the refreshed device before taking it global. Palm wins out here as there are not as many CDMA models in this class. Palm gets a huge jump in international markets with CDMA, though at the same time, CDMA is not nearly as prevalent as GSM throughout the world.

– There was talk of possible new designs, but not really straying from the QWERTY and big battery

Good, but that will hinder Palm lest they can come up with different form factors of this design that work (sliding, folding, unwrapping, etc.). Palm doesn’t feel threatened though by the Motorola Q or other new designs. They think at the end of the day it’s the features and functionality that will drive purchases and loyalty to the Treo platform. To a certain extent that’s true, but you also have to offer something to get the entry buyers that are all congregating to the Q, HTC and older Treo units. The new low cost, possibly free, Treo will go a long way to address that concern.

– Treo sales fell 24%

For a model like the Treo that has seen new releases, lack of sales of the newest models points to lack of planning for the culture of smartphones and too high of a price introduction. Palm could have had the 700w/wx/p come out at $300 and it would have made a royal killing after contract, even with the USA’s high data price model. In short, not having a low cost Treo come out earlier this year (late last year) hurt Palm really bad and they seem to be working hard to fix that. Hopefully the model isn’t missing vital (to consumers, not enterprises) pieces. Sales through business channels went well, but it was the in-store sales that hurt them the most. Again, this points to price levels being too high for first time smartphone buyers, small businesses and SOHO users.

– Very little mention of PDA business

We all know the PDA business in general terms, is going away. PDA units again saw a massive slowdown in sales. Palm didn’t address this much on the call, largely because the analysts don’t care, but don’t be surprised to see Palm breathe a little more life into this side of the business with more entertainment oriented devices, following behind where the LifeDrive started.

– When talking about the new Treo there was some apprehension on a when, basically on the mention of carrier testing might take longer than they expect.

Palm clearly has done a ton of work to Garnet to make it work, and they are most definitely paying for that with delays in getting products to market with the Palm OS. However, if they cannot deliver a low cost Treo before the holidays, it will hurt them badly.

I noticed that there was mention of a change in strategy, but it never came across as a clear strategy.

I think the focus on just one quarter of info and forecasts shows that Palm is having trouble matching products with the marketplace.

– Palm is spending $25M in marketing

Granted, most of this is because the 750v is a heck of a first EU step (not their first device, but they at least tried with this instead of a US package with different plugs). But I think that their lack of getting into people’s minds and pockets with previous marketing will hurt. They need more product placement, as well as an as an ad and marketing campaign that helps feature phone buyers understand the benefits of Treo. Businesses already get it, so it would be unwise to invest heavily there.

– Treo as the figure head and other products being rolled into it

I liked hearing this, as this sounds more like what Pontiac has done with the Solstice. Make a halo product and inject that DNA all around. Of course, Pontiac has yet to be successful in more than just getting people to look. Palm needs that effect, but also for people to buy. I can see new Treo-like products but not a Treo, more like a Treo and LifeDrive had a love child.

– Next year will be similar to this year in terms of product launches.

I will go out on a limb here and say that the plan is for 3-4 new devices, half of which are Treos. But, that only 2-3 will get into consumer’s hands. I think one might be a great product, but won’t be a great seller. They will need to uptick the new models though. Palm has been way too quiet on this front despite their twice a year model release schedule. If they want to reach the non-business user, they’re going to have to make devices with more edge that also include new and upgraded features on a more regular basis.

So, those are my notes and reactions. Granted, there is only so much that one can get from a conference call. However, I am not very confident in where Palm is. Lower priced Treos are late, and changing their focus yet again doesn’t speak well for leadership staying put long. However, they still have a name for themselves that isn’t going down quietly. Regardless of how many people call Treos BBs, they still have a presence (RIM/NTP helped that a lot). It will be interesting to see where the two OS strategy takes them in the next six months or so.



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