Palm Investor Relations Conference Call Recap - Treo Sales Up
There was good news and bad news in yesterday’s investor relations conference call by Palm. In the quarter ended June 1, 2007, Treo sales to end users reached 750 thousand units, an all time high, up a staggering 43% year over year. Also, the company earned more per Treo sold than in previous quarters thanks to streamlined manufacturing and reduced costs for raw goods. But Palm increased spending for research & development as well as marketing, and therefore had lower net income overall. Management also cautioned that Treo sales may decline next quarter by as much as $50 million due to the iPhone, which Apple is launching later today and may compete directly with the Treo.
Palm reported total revenue for the quarter of $401.3 million. Smartphone revenue was $344.2 million, up 14% from the year-ago period. Net income for the quarter was $15.4 million, or $0.15 per diluted share. This compared to net income for the fourth fiscal quarter of last year of $27.2 million, or $0.25 per diluted share.
“Our record Treo sell-through reflects strong fundamentals in the core focus areas of our business,” said Ed Colligan, Palm president and chief executive officer. “In fiscal year 2007, we expanded our international presence, improved our product pipeline and developed strategic platform technologies. I’m confident that in fiscal year 2008 more and more standard handset customers will demand the capabilities and ease of use of Palm smartphones….”
Perhaps the most important topic covered on the conference call was strategy. One of Palm’s challenges has been that its main manufacturing partner, HTC, an incredibly capable Taiwanese firm, has brought to market several devices under its own brand name that compete directly with Palm’s Treo smartphone lines. Palm has been reluctant to fire HTC because there is perhaps no stronger manufacturer.
Palm indicated on the call that they would continue working with “existing ODM partners” on devices for the corporate market. This probably means Windows Mobile smartphones with external physical keyboards similar to what the company has already been developing. (See slide up and to the right.) However, Palm is organizing a separate team to design new proprietary consumer products without outside help, which should make it more difficult for its partners and competitors to copy.
Taken in context of Palm’s addition of Paul Mercer, one of the original designers of the Apple iPod, and in context of Elevation Capital’s partnership with Palm, which adds several members of Apple’s team to Palm’s board, this reorganization around externally and internally developed lines may signal a new initiative to develop a proprietary multimedia-focused smartphone. Palm’s product development cycle ranges from two to five years. Therefore, the earliest consumers are likely to see results in this area is the first half of 2009.
In the meantime, Palm committed to delivering major new platforms in both hardware and software. According to Ed Colligan, “[In the next twelve months] you can expect to see a number of major new product deliveries. Of course, the Foleo will be delivered, but also a range of smartphone products that will reach new customers and new demographics, as well as expand our carrier reach.”
Rumors recently surfaced that a WiFi enabled Windows Mobile Treo 800w will be released this calendar year. Some believe Palm will also release a slimmer form factor Treo code named Gandolf with reduced capabilities such as no touch screen. However, Palm also has signaled a commitment to the Linux market, and has been advertising for Linux development positions at the firm. One of Palm’s operating system software development partners, ACCESS, is developing a Linux platform. We think it’s likely there will be a new category of Palm Linux smartphones in 2008.
Regarding the company’s new product category Foleo, management conceded that “pundits” have given the product mixed reviews prior to release. However, Palm is seeing significant interest in the Foleo among key customers such as educational institutions and the military, which would benefit from low end, light weight and easy to use mobile computers. Management also indicated that the Foleo would evolve to have far stronger technical specifications. In the meantime, management feels that consumers who find traditional Windows laptops cumbersome and complicated are prospective buyers.
Palm made the following financial predictions for fiscal 2008:
- Revenue between $355 million and $365 million
- Gross margin in the range of 36.8 percent and 37.3 percent
- Operating expenses in the range of $137.5 million to $141.5 million
- Annual tax rate of 40 percent is expected
- Earnings per diluted share are expected to be in the range of ($0.01) to $0.01
Generally speaking we believe Palm is making good moves. The company cannot control the competitive environment– there will always be new over-hyped releases such the Apple iPhone, that temporarily draw attention away from Palm’s offerings. But Palm’s past products, including the Treo 600, 650, 680 and 750, have been on the money– delivering quality and real usability at low retail prices. Linux is an awesome platform (we have played with early Linux devices that are very sweet). We have every confidence in the company’s ability to bring about superb new products in coming months and years.
Related Links
Palm Conference Call Slide Show
Palm Conference Call Recording
Filed under: Treo and Palm news
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A real question is- what percentage of these massive “sell throughs” were really people repurchasing the 700p WITH bluetooth (the Treo 755).
Palm’s apparent scheme to inflate their numbers by failing to honor basic terms of their warranty has worked for them for years (failing keyboard = “user caused,” etc.), but more and more of their hardcore users are sick of it and walking off Palm’s “churn treadmill.”
The “80% of Treo users don’t use any third party apps” crowd are fickle and trendy - not committed to Palm technology at all. The iPhone or Razr or Q or whatever “flavor of the day” will become their next phone. I just met with a client that could buy a huge chunk of Palm if she wanted to - her Palm PDA sits in a corner gatering dust - she prefers syncing her contact and calendar to her plain old iPod.
Palm’s complete dismissal of “power users” in favor of chasing the fickle “80%” who often see the Treo as little more than a read/write iPod with an IP connection is now coming home to roost. They blew it.
A real question is- what percentage of these massive “sell throughs” were really people repurchasing the 700p WITH bluetooth (the Treo 755).
Palm’s apparent scheme to inflate their numbers by failing to honor basic terms of their warranty has worked for them for years (failing keyboard = “user caused,” etc.), but more and more of their hardcore users are sick of it and walking off Palm’s “churn treadmill.”
The “80% of Treo users don’t use any third party apps” crowd are fickle and trendy - not committed to Palm technology at all. The iPhone or Razr or Q or whatever “flavor of the day” will become their next phone. I just met with a client that could buy a huge chunk of Palm if she wanted to - her Palm PDA sits in a corner gatering dust - she prefers syncing her contact and calendar to her plain old iPod.
Palm’s complete dismissal of “power users” in favor of chasing the fickle “80%” who often see the Treo as little more than a read/write iPod with an IP connection is now coming home to roost. They blew it.
I agree about Palm blowing it by strictly going after the low end of the market. Palm needs to keep the “pundits” happy with stronger specs.
That said, if the Foleo is really going to be a “smartphone companion,” we may see Palm produce the kind of high end device we all really want. I remember Jeff Hawkins saying in an interview (wish I remembered which one) that he envisions the phone becoming so powerful it can be your only computer. Perhaps 2 to 5 years from now the new Palm/Apple team will give us a massively powerful little device with an iPod-like interface that docks to a Foleo when you need a real keyboard. That would be cool.
I’ve also played with some pretty sweet Linux devices, which makes me think next years offerings from Palm could keep the critics at bay. There is an awesome little phone with a built-in card scanner that works with the camera– so you snap a photo of the business card and it’s automagically added to your contact list. Also, the navigation was sweet.
Anyway, this is all conjecture. But let’s hope. :-)
shouldnt Palm be scared of iphone? Palm is trying something innovative by making something that looks like a laptop but less useful and something you cant possibly pocket for 500$. thats not needed if i wanted to look for a bigger screen then i would hotsync my treo to get the pictures out and see them nice and big wow. i would have a full keyboard which im typing on right now. thats unheard of.
The iPhone keyboard is awful, and it won’t run third party apps. I don’t see it taking market share away from Palm in the enterprise and prosumer markets. If the iPhone price comes down from $600 with service to around half that, it could be a threat in the consumer market. But more likely IMHO it will simply increase the size of the market for feature/smart phone devices.
The one thing that could save the iPhone among people like me - who hate its keyboard and demand real email / texting - may be the Foleo.
(Apple would be wise to upgrade the data rate from 2.5G to 3G so the iPhone is a better partner to companion devices that rely on it for a network connection.)
Ok folks. My Treo 650 is pushing 3 years old and an upgrade my be coming soon. I am on AT&T (Cingular) and I’m looking for a 3G, Palm based treo. The 680 doesn’t do it for me. Any insight as to when a new palm based Troe will be out?
Bill