Longtime PDA and phone manufacturer Palm had a rough day Friday. Although the stock exchange rose sharply in the wake of news that the U.S. government was stepping in to stabilize the financial markets, Palm's stock fell nearly eight percent, to $7.83.
The drop was driven by the release of Palm's fiscal first quarter results. The company said its revenue rose less than two percent, to $366.9 million, while its quarterly loss rose to $41.9 million, or 39 cents a share.
Overall, the first-quarter report was better than anticipated (even Palm officials had predicted declining revenue), but analysts raised concerns about whether Palm can remain competitive in an increasingly crowded smartphone market.
Palm 'Slow to Adapt'
Greg Sterling, founding principal of Sterling Market Intelligence, said Palm is wrestling with consumers' perception of a tired brand.
"Palm helped create the smartphone market with its Treo line," Sterling said, "but the company has been slow to adapt to a new competitive marketplace. The dynamics don't look as good from a consumer or business perspective."
Sterling said the Palm Treos have been popular and the Palm Treo Pro should be well received. But, he added, there's a lot of new smartphones competing for consumer attention.
"I think it's a fairly straightforward situation in the marketplace," Sterling said. "There's a lot more competition for the same smartphone dollars. Both Apple, obviously, and RIM have stepped up their efforts by introducing more phones and more features, targeted at both consumers and business users. And in the coming week, we'll see the rollout of the first Android-driven phone. It's tough for Palm to attract attention."
No Carrier Support?
One factor hampering the Treo Pro is that Palm has not yet signed a marketing agreement with a major telecommunications carrier. Instead, Palm will sell the device unlocked, which means it can be used on multiple networks in the U.S. and in Europe.
Selling unlocked phones in the U.S., Sterling said, may be a challenge for Palm. "Most American consumers are not very sophisticated about unlocked phones," Sterling said. "It's not really part of our culture, how to use them, how to switch SIM chips in and out, that sort of thing." However, he said, the unlocked phones should make Palm more competitive in the overseas smartphone market.
Adding to the mix is Palm's work on a new version of its Palm operating system, due next summer. As in the smartphone market, the new OS will be competing with updated versions of Windows Mobile, Apple's iPhone, and Android, but some analysts think Palm will still see a return to profitability.
In a press release accompanying the first-quarter financial report, Palm President and CEO Ed Colligan expressed confidence in the company's long-term prospects.
"While we're still in the midst of our transformation and have challenges ahead," Colligan said, "we are bringing outstanding new products to market, hiring world-class talent, and preparing to launch a new platform that will usher in a new era at Palm."
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