Palm stock down on product miss: Delayed Treo at Verizon Wireless the likely culprit

Palm Inc.’s stock plunged more than 16% after the company acknowledged that “a key product” failed to launch in the lucrative fourth quarter, that sales would badly miss its own estimates and that a financial loss loomed.
The company’s quarterly revenue is now expected in the $345 million to $350 million range, well below its Oct. 1 guidance of $370 million to $380 million. A loss of 22 cents to 24 cents per share is likely, the company said. Gross margins are expected to decline to between 29.5% and 30%, down from the forecasted 33.5% to 34%, on higher-than-expected warranty expenses and a product shift to the Centro device, which carries lower margins than its mainstay Treos.
Palm’s stock hovered around $5.52 per share on the news; in the past 52 weeks it has gyrated between $6.29 and $19.50.
Palm’s fiscal second quarter ended Nov. 30 and the company plans to report full results on Dec. 18.
CEO Ed Colligan said that delays in certifying a new product-speculation focused on a new model of the company’s signature Treo device destined for Verizon Wireless-cut into holiday-season revenue.
While “disappointed,” Colligan said the company was “focused on long-term benefits and opportunities” made possible by new cash from investor Elevation Partners. (Elevation provided $325 million in June; Palm took on an additional $400 million in debt and added two former Apple Inc. veterans to its board.)
“We are pleased with recent improvements in our product delivery engine, the early success of Palm Centro, and the significant progress we’ve made on our strategic platform,” Colligan said in a statement.
“Concerned by potential cannibalization, competition and poor execution,” wrote UBS analyst Maynard Um. “Although we believe Centro unit volumes at Sprint have been strong due to attractive $99 pricing, we believe this may have been at the expense of existing, higher-ASP (average selling price) Treos. Although a product launch delay (impacted) revenue, we are more concerned about potential for . decreasing market share at other operators due to heightened competition from Research In Motion, LG, Apple and HTC, among others.”
Um said Palm should consider job cuts and store closures to reduce its overhead.
Palm is pursuing a new product platform and Linux-based operating system to lift its revenue, profit and market share, now at about 3% of the smartphone market, as consumer interest in its Treo line has waned. Analysts have said that the Treo is too large, too enterprise focused and has failed to keep pace with the market. Palm’s signature OS has also been criticized for trailing the market.