(Includes analysts' comments, updates share price)
By Dan Gallagher
Shares of Palm Inc. (PALM) rallied 16% early Friday as investors
reacted favorably to the handset maker's fourth-quarter financial
results - even though the period didn't include sales of the
company's newly launched Pre smartphone.
Late Thursday, the company reported its quarterly losses widened
on a sharp drop in sales. Palm's fiscal fourth-quarter ended May
29, a week or so before the company's popular Pre smart phone went
on sale. The company didn't issue a forecast for the current
period, but said it expects to be cash-flow positive by the end of
the calendar year.
Shares of Palm were up $2.24 to $16.26 in midday trading.
"It was encouraging to hear management's confidence in targeting
pro-forma EPS and cash-flow breakeven by early [2010], with no
immediate need to raise more cash," Vivek Arya of Bank or America
wrote in a note to clients on Friday.
Arya and other analysts have been closely watching the company's
cash levels, as Palm is looking to revive its business by launching
a host of new devices on its newly developed webOS platform. The
Pre - which went on sale at Sprint (S) on June 6 - is the first of
those devices.
"While we are encouraged by the bare bones spending in the
quarter, we do expect [operating expenses] to ramp materially in
the August quarter to support the launch of the Pre," wrote Matthew
Thornton of Avian Securities.
In its conference call, Palm gave little in the way of detail on
the Pre launch, except to say that it exceeded the company's
expectations.
"We think the Pre is by far the best product we have ever
shipped, and I am very happy with how we're managing the launch,"
Palm CEO Jon Rubinstein said on the call. "We're successfully
ramping supply to meet demand that is strong and growing."
Rubinstein noted that the company faces "vigorous competition"
in the smartphone space now dominated by the BlackBerry from
Research In Motion (RIMM) and the iPhone from Apple Inc.
(AAPL).
Analysts believe Palm shipped between 50,000-70,000 Pre units
during the recently ended quarter. Palm is believed to be drawing
an average selling price of around $450-$460 per unit - though
Sprint is subsidizing the cost to sell the product to consumers at
a price of $199 - competitive with other smartphones on the
market.
Valuation a growing concern
Palm reported a loss of $91.5 million in the fourth quarter, and
the company expects losses to continue for the rest of the year as
it ramps up to build a new family of smartphones.
But the company's stock has been on a strong run-up since the
first of the year, when it first unveiled the Pre at the Consumer
Electronics Show in Las Vegas.
"We still see risk of demand fading and would not chase the
stock at current levels as we believe current valuations and
consensus expectations leave little room for further positive
surprise," wrote Citigroup analyst Jim Suva, who maintained a hold
rating on the shares.
Wall Street is largely cautious toward the stock, though many
analysts have been impressed by the Pre and webOS. Out of 23
analysts covering Palm, 11 carry neutral ratings while four rate
the stock as a sell, according to Thomson Reuters. Only eight rate
the stock as a buy.
"We think Palm has demonstrated a marked improvement in
execution which gives us some comfort that they can continue to
build on the Pre's success so far," wrote Jonathan Goldberg of
Deutsche Bank, who carries a buy rating. "We expect further device
and carrier announcements in coming weeks."
Palm said it had $255.1 million in cash and equivalents by the
end of the period. CFO Doug Jeffries said the company has
"sufficient capital to support our current operating plan and to
make the necessary investments in marketing product development and
operations to drive long-term success."
-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com