Is Palm Past the Turnaround Point?

Smartphone maker Palm is laying off workers, while analysts are downgrading the company and its prospects for survival on its own.

The layoff action, announced Friday, comes nearly two months after the launch of its newest high-end smartphone, the Treo Pro. The news sparked downbeat comments by analysts who wonder if Palm (NASDAQ: PALM), already struggling with waning market share and continued losses, can weather the economic downturn.

“Palm was an early mover in the smart device market a few years ago, but it moved too slowly and failed to capitalize on its initial traction,” Neil Mawston, director, global wireless practice, Strategy Analytics, told

Carmi Levy, a telecom and mobile analyst,
told he thinks a bankruptcy filing could be looming for the troubled smartphone maker if it doesn’t find a potential sale.

[Korean handset maker] “HTC, which has strong engineering credentials but no brand, could benefit from having Palm’s brand,” Levy said.

If Palm pushes forward for a turnaround Mawston believes it’ll take more than just an innovative handset.

“Palm lacks differentiation, it lacks the global scale of Nokia, the wow design of Apple, the operator-customization of HTC and the sticky e-mail service of Blackberry,” Mawston said, adding that at the very least Palm needs to push out a flagship product pronto.

Palm, which would not comment on the number of employees involved in the layoff, issued a short statement.

“As a result of significant challenges facing our company and industry, Palm is restructuring its worldwide operations to better position the company for achieving profitability and long-term growth,” a spokesperson told in an e-mail.

“The global economic downturn continues to dampen demand for consumer goods around the world, and the impact on the economic environment is worsened by our maturing Centro line and the length of time it is taking to ramp our new Windows Mobile products. The restructuring will result in company reductions in the U.S. and internationally, and our goal is to consolidate resources behind fewer programs to focus our efforts more effectively.”

The layoff news and the downbeat comments from industry analysts illustrate how fast the one-time leading-edge smartphone maker has fallen.

Palm, which currently counts 1,050 workers, rocketed to fame in the late 1990s and early 2000s thanks to the popularity of its Palm Pilot PDA devices. Business users loved their ability to synchronize computer calendars on a clean little handheld device. The Palm developed a rapid following similar to the devotion of Apple fans of today.

Palm has been steadily losing market share since the launch of its Treo smartphone over four years ago.

In the fourth quarter of 2006 Palm held 18.1 percent of the worldwide smartphone market, according to IDC. That share spiked to 23 percent in the first quarter of 2007 but then declined through the rest of 2007 to single digit share.

Palm remains in third place behind RIM and Apple in the U.S. market for smartphones, and that margin is growing. According to IDC, it held 13.4 percent of the market in the first quarter of 2008. As of the third quarter, that share was even farther back in third place at 8.5 percent.

You might argue Apple is stealing Treo share. From the second quarter to the third quarter of this year, Apple’s percent of the U.S. smartphone market went from 7.4 percent to 30.5 percent of the market. IDC said RIM’s share slipped from 53.6 percent in the second quarter to 40.5 percent in the third quarter.

According to research firm M:Metrics, Palm’s smartphone business experienced 47 percent growth between September 2007 to September 2008 at a time when smartphone growth overall clocked in at 106 percent and as RIM alone experienced 141 percent growth in the same time frame, according to the firm.

So can Palm stop the slide? Palm is readying a new mobile handset platform for early 2009 — a development that was needed much earlier this year, noted analysts. The company has also lured major talent such as Apple’s iPod innovator John Rubinstein and Apple’s senior vice president of product development Mike Bell.

During Palm’s third quarter earnings report, CEO Ed Cooligan said the company is focused on people, products and platforms.

Palm reported better than expected revenues in the third quarter of $366.9 million, which beat analysts’ estimates of $329.9 million, but also reported a net loss of $41.9 million, representing 39 cents a share. Analysts had expected a loss of 20 cents a share on revenue of 329.9 million.

During the call Palm leaders boasted about the new Centro, as well as Google map applications, the July debut of the Treo 800W and the Treo Pro, a high-end smartphone Palm pushed out in August.

Hopes are high for the new operating system slated for next year, and how it could help keep customers and developers working with the Palm platform.

“When that new OS comes the only hope is that it offers a big differentiator that can bring back the Palm fame,” said Levy. “But in my view there is very little hope for a major turnaround,” he said. “Palm has to give its loyal users a reason to stay and a reason for others to switch from the iPhone or BlackBerry.”

Palm’s product portfolio and platform efforts pale in such fierce and continual handset development happening in the industry, said analysts.

On October 22 the first open source Android smartphone, the HTC G1, arrived following lots of hype. Then RIM launched its Bold. In addition the market has seen Nokia’s 5800 XpressMusic, Samsung’s Epix, Motorola’s Krave and LG’s Incite hit the market.

“For 2009, Palm will need a product-led recovery and, at a minimum, a handset model with standout design, a big display and a QWERTY keyboard to drive excitement,” Mawston said.

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