The death of Palm: “We no longer see any value in the company”

After managing to sell less than half the phones they shipped last quarter, word of Palm’s impending doom is spreading fast.

In the first quarter Palm shipped  960,000 Pre and Pixi’s to Sprint and Verizon, but shoppers only purchased 408,000, resulting in a shut down of Palm’s production lines in early February for most of the month. 

Now the company has revealed it expects similarly bleak results in Q2 2010, and rumours are spreading of carriers backing away from the troubled smartphone maker.

Canaccord Adams analyst Peter Misek feels Palm’s troubles will likely accelerate as its partners question the company’s solvency and withdraw their support.

"With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity, we no longer see any value in the company’s common equity," he said in a note.

The shares has already dropped a further 19% since their earnings call yesterday, and is trading at around $4.60 at present.  At it’s darkest hour the stock traded at $1.52 in December 2008, so it clearly still has some way to fall.  

Other analysts also predict bankruptcy. Kaufman Bros analyst Shaw Wu cut his rating on the shares to "sell" from "hold".

"While we believe Palm has some value with its webOS …we are unsure of the company’s prospects as an ongoing concern," he said in a client note.

Morgan Joseph & Co analyst Ilya Grozovsky  said "Palm is essentially an accelerating death spiral. They have had a tremendous problem selling their devices even at carriers like Verizon with 80 million subscribers,"

"They keep saying, ‘we need to market, market, market,’ because in their mind it’s a marketing problem," he said. "But it’s not about the trainees and the sales people, it’s just too competitive of a space right now for Palm to make any difference."

At its height on its IPO in 2000 the company was valued around $950 per share. Canaccord Adams’s Mistek and Morgan Joseph & Co’s  Grozovsky currently gives the stock a price target of $0.

Palm serves as a object case of the dangers of neglecting and abandoning your user base while pursuing new markets.  Much like Windows Mobile,  PalmOS stagnated for more than 3 years while the company developed and re-developed a next generation OS in secret, and of course launched without any backward compatibility and with a very small amount of applications. Much like Windows Phone 7, the OS was also lauded for its breakthrough user interface concepts and ability to mesh with cloud services. In the case of WebOS this has clearly not translated into sales.

While Microsoft is of course not at all dependent on their mobile business, hopefully their Windows phone division will manage this feat better.

Read more at Yahoo! Finance here.

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