Palm On Verge of Darwinian Downfall

You’ve got to feel a little sorry for Palm Inc. (PALM). Watching the mobile device maker try to compete is Darwinism in action – the company has not been the fittest and its chances of survival fade by the day.

Palm’s Pre and Pixi smartphones haven’t had the hoped-for adoption rates at Sprint Nextel Corp. and transactions through Verizon Wireless haven’t been so great either. And now wireless providers are taking steps to protect their revenue by putting holds on more Palm orders. But in a memo to employees this week, Palm CEO Jon Rubinstein seemed to blame Verizon for the dismal sales – not Palm’s less-than-riveting new operating system and sadly lacking apps store (as compared to the iPhone and Droid).

Rubinstein has met with Verizon executives and says there’ll be changes to marketing and branding techniques but uncertainty over Palm’s future continues to spill over onto Wall Street. Investors are running scared from the company, especially since Palm warned it will report lower-than-expected revenue for its current quarter. Six brokers this week got rid of their Palm “buy” ratings and many more kept theirs at “neutral.”

UBS was one of the companies to recommend selling Palm. Palm’s options “in a full survival mode” are limited, an analyst wrote in client memo. And a Kaufman Bros. analyst, after downgrading Palm’s stock to “hold,” called the move regretful but said Palm’s problems “are fundamental in nature and likely ongoing.”

In the meantime, industry observers are expecting layoff announcements at Palm’s next earnings call and watching to see how quickly the company burns through its meager cash reserves – the handset manufacturing business is an opex-intensive one. Maybe that rumored Palm buyout will materialize soon.

On Friday, Palm’s shares had fallen 4.75 percent to $6.22 by about 2:30 p.m. Eastern. The 52-week low is $5.85.


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