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Palm Reading: Investors Left With More Questions


For starters, why did company change purchase commitment window?

Palm's (PALM) most recent 10-Q wasn't filed until December 23 so I didn't get a chance to look at it until this week. As we saw when it reported fiscal second quarter results on December 17, the quarter kept more questions open than it answered for most investors.

During a period when it launched two new carriers as well as the new low-end Pixi, smartphone unit shipments were down 5% sequentially. Yes, some of that was due to older models, but be realistic. Just how many carriers do you think have been ordering those products in recent months?

More troubling to me were the comments from management regarding weak sell-through at Sprint (S). This was followed by a statement that Palm has "work to do increasing the awareness of the Palm brand." Say what? Palm's been around for more than a decade and its brand isn't exactly a well kept secret. Given the hype associated with the lead-up to the Pre launch and that following it, brand awareness wouldn't seem to be the problem.

As was the case on the last call, the company indicated that it was expecting to launch with new carriers in the near term. Based upon those expectations, management reiterated confidence in its fiscal year 2010 revenue guidance of $1.6-$1.8 billion. If that's the case, why are the purchase comments at contract manufacturers not ramping accordingly (see graph below)?

As I've noted previously, the company changed its purchase commitment window in the fiscal first quarter to extend out to 120 days versus the historical 90 day window. Why? Was that intended to provide some cover? Shouldn't we be seeing a fairly substantial ramp to make that fiscal year 2010 revenue guidance?

Palm had little trouble with its secondary stock offering to raise cash back in September. All that means is that there remain more than a few true believers. I wish them luck, but I just don't happen to be one of them.
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