The Palm (NASDAQ:PALM) takeover saga continues as the company declined to comment the rumors on its quarterly conference call. Lots of comments about the results and takeover situation today.
- RBC says soft Q4 Guidance reflects higher 680 mix. Q4 guidance for $400-410M missed $416M conc, implying 0% Q/Q growth (vs. 6% Q3) reflecting expected higher (lower ASP) Treo 680 mix and ongoing PDA weakness. GM guidance for 36-36.5% was slightly down from Q3 and less egregious than expected. EPS outlook for $0.13-0.16 (inline with RBC) reflects ongoing cost containment, and appears conservative.
Firm says Palm appeared defiant, focused on turnaround, not takeout, increasing our conviction that no takeout is imminent. Palm affirmed pending Smartphone announcements (expected May, ahead of iPhone), aimed at recovering lost momentum. Turnaround remains possible -- but daunting hurdles remain.
Firm raises price tgt to $18 from $15.
- ThinkEquity says that although Palm's share price has reflected rife speculation on the takeover front, they think it prudent that investors focus on fundamentals. On this note, fiscal 3Q saw a return to revenue growth, gross margin expansion, record Treo unit sell-in and sell-through, and the revenue outlook (although lower than our model on whithering handheld units) points to improving Treo channel inventories. While one quarter does not a trend make, it appears we are seeing early signs of improved execution. Firm is raising their price target to $20. Maintain Accumulate rating.
- Merrill Lynch continues with their cautious view, noting that while Palm's Treo shipments grew 37% YoY in the Feb Q, the growth pales in comparison to the 90% YoY growth of RIM's Blackberry, by their estimates. Palm lost share despite 11% declines in average Treo selling prices versus only 3% drop in Blackberry selling prices, in the same period.
Palm's below-consensus May Q sales outlook of ~$405mn (~ down QoQ, flat YoY) and continued EBIT declines reflects the intensely competitive environment. Firm believes Palm benefited during the past quarter from a benign competitive environment at main carriers Verizon/Sprint. However, competition is likely to intensify when RIM launches its new Pearl/88xx at those carriers. The expected launch of Apple's iPhone at Cingular, featuring touch-screen features (similar to Palm's Treo), could also steal mindshare away from Palm.
Palm stock has appreciated ~31% in the past 2 months on speculation of a takeout. However, on the call management gave no indication of any imminent deal, which firm believes is likely to disappoint short-term oriented investors. Even if the deal were to materialize they do not expect any significant premium as Palm currently trades at a rich ~28x PE on firm's and consensus CY08 estimates. They are lowering FY08 est. by 20c to 61c and FY09 est. by 25c to 72c, on lower Treo ASP expectations, high opex, and faster declines in high-margin handhelds.
- Citigroup says that while the guidance is falling below existing estimates, overall they do not see the existing performance or future outlook in a negative light. Coming into the call, they had meaningful concerns about their near-term outlook, especially since they put themselves up for sale. Within this context the numbers were not that bad.
Having said that, they were surprised by management's decision to guide to flat to down operating expenses in 4Q. They argue that the lower spending is simply a timing issue. Given the ramp of competitive products expected to arrive in the market place (Q-derivatives, i-phone), firm would think that higher investment levels would be necessary. As was illustrated last year with the Moto-Q, competitive launches can cause short-term volatility in Palm's order shipments.
The company has made very little progress thus far in re-designing the Palm OS source code received from Access. This means it will be a while before they will be able to ramp up a WCDMA Palm OS product portfolio. Firm estimates that they are probably at least 1 to 1.5 years away from launching Palm 3G devices. With carriers allocating more 'shelf space' to 3G and less to GSM devices, this increases the risk level around their market share position. While the company can design Windows-based products with 3G, these products traditionally have been much volatile for Palm and more vulnerable to competitive pressure.
Notablecalls: The rumors of MOT-for-PALM still continued to circulate yesterday with chatters of deal already today. Sorry to dissapoint you guys and gals, still do not see it coming. Coming back to the reality, while the quarter was not bad, the guidance is not that nice. Given that we are getting nearer to expected iPhone launch I would expect consumers to postpone their purchase, thus hurting Palm's May qtr. However, while tempting, it is tough to short the shares today as most analysts seem to be rather positive and potential for more takeover chatter.
- RBC says soft Q4 Guidance reflects higher 680 mix. Q4 guidance for $400-410M missed $416M conc, implying 0% Q/Q growth (vs. 6% Q3) reflecting expected higher (lower ASP) Treo 680 mix and ongoing PDA weakness. GM guidance for 36-36.5% was slightly down from Q3 and less egregious than expected. EPS outlook for $0.13-0.16 (inline with RBC) reflects ongoing cost containment, and appears conservative.
Firm says Palm appeared defiant, focused on turnaround, not takeout, increasing our conviction that no takeout is imminent. Palm affirmed pending Smartphone announcements (expected May, ahead of iPhone), aimed at recovering lost momentum. Turnaround remains possible -- but daunting hurdles remain.
Firm raises price tgt to $18 from $15.
- ThinkEquity says that although Palm's share price has reflected rife speculation on the takeover front, they think it prudent that investors focus on fundamentals. On this note, fiscal 3Q saw a return to revenue growth, gross margin expansion, record Treo unit sell-in and sell-through, and the revenue outlook (although lower than our model on whithering handheld units) points to improving Treo channel inventories. While one quarter does not a trend make, it appears we are seeing early signs of improved execution. Firm is raising their price target to $20. Maintain Accumulate rating.
- Merrill Lynch continues with their cautious view, noting that while Palm's Treo shipments grew 37% YoY in the Feb Q, the growth pales in comparison to the 90% YoY growth of RIM's Blackberry, by their estimates. Palm lost share despite 11% declines in average Treo selling prices versus only 3% drop in Blackberry selling prices, in the same period.
Palm's below-consensus May Q sales outlook of ~$405mn (~ down QoQ, flat YoY) and continued EBIT declines reflects the intensely competitive environment. Firm believes Palm benefited during the past quarter from a benign competitive environment at main carriers Verizon/Sprint. However, competition is likely to intensify when RIM launches its new Pearl/88xx at those carriers. The expected launch of Apple's iPhone at Cingular, featuring touch-screen features (similar to Palm's Treo), could also steal mindshare away from Palm.
Palm stock has appreciated ~31% in the past 2 months on speculation of a takeout. However, on the call management gave no indication of any imminent deal, which firm believes is likely to disappoint short-term oriented investors. Even if the deal were to materialize they do not expect any significant premium as Palm currently trades at a rich ~28x PE on firm's and consensus CY08 estimates. They are lowering FY08 est. by 20c to 61c and FY09 est. by 25c to 72c, on lower Treo ASP expectations, high opex, and faster declines in high-margin handhelds.
- Citigroup says that while the guidance is falling below existing estimates, overall they do not see the existing performance or future outlook in a negative light. Coming into the call, they had meaningful concerns about their near-term outlook, especially since they put themselves up for sale. Within this context the numbers were not that bad.
Having said that, they were surprised by management's decision to guide to flat to down operating expenses in 4Q. They argue that the lower spending is simply a timing issue. Given the ramp of competitive products expected to arrive in the market place (Q-derivatives, i-phone), firm would think that higher investment levels would be necessary. As was illustrated last year with the Moto-Q, competitive launches can cause short-term volatility in Palm's order shipments.
The company has made very little progress thus far in re-designing the Palm OS source code received from Access. This means it will be a while before they will be able to ramp up a WCDMA Palm OS product portfolio. Firm estimates that they are probably at least 1 to 1.5 years away from launching Palm 3G devices. With carriers allocating more 'shelf space' to 3G and less to GSM devices, this increases the risk level around their market share position. While the company can design Windows-based products with 3G, these products traditionally have been much volatile for Palm and more vulnerable to competitive pressure.
Notablecalls: The rumors of MOT-for-PALM still continued to circulate yesterday with chatters of deal already today. Sorry to dissapoint you guys and gals, still do not see it coming. Coming back to the reality, while the quarter was not bad, the guidance is not that nice. Given that we are getting nearer to expected iPhone launch I would expect consumers to postpone their purchase, thus hurting Palm's May qtr. However, while tempting, it is tough to short the shares today as most analysts seem to be rather positive and potential for more takeover chatter.
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